Commercial leases under strain as emergency protections roll back

State and territory Governments throughout Australia responded to the economic downturn wrought by the COVID-19 pandemic by allowing temporary relief to commercial tenants from their rental and trading obligations last year. Yet as the country and the economy begin to recover, this measure is slated to end abruptly. Commercial property holders looking to regain the ability to draw rental income from their investments as soon as possible, have backed moves to end the measure, while critics maintain this will cripple, or force already struggling small business to cease operations. As tenant protections are wound back, lessors may be increasingly eager to take enforcement action, such as eviction, but have been urged to seek independent legal advice before taking this step to avoid lengthy and expensive litigation. In 2021, authorities in each jurisdiction have taken their own approach to supporting commercial tenants and lessors, with several jurisdictions maintaining support so far, and flagging scope for further extensions, while others have already ended it.

Australian Capital Territory

In the ACT, the commercial leases declaration and commercial rates relief ended on 31 January 2021. However, landlords must still negotiate in good faith before taking action against an impacted tenant for a prescribed breach that occurred while the commercial leases declaration was in force. Applications for commercial rates relief for 1 April 2020 to 31 January 2021 can be made until 31 March 2021. The ACT Government has encouraged commercial tenants and landlords to continue to work together and adjust leasing arrangements as necessary after 31 January.

New South Wales

In a climate of increasing community transmission and closing state borders, on 18 December 2020, the NSW Government extended its COVID-19 protections for commercial lessees until 28 March 2021. The Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 commenced on 1 January 2021 and extended restrictions on evictions of impacted lessees for non-payment of rent. From 1 January 2021, ‘impacted lessees’ will require: a lease which commenced prior to 24 April 2020; a tenant who receives JobKeeper, which means the tenant's business must be suffering downturn to qualify under this scheme; and a tenant whose 2018/19 turnover was less than $5 million (i.e. not the $50 million allowed in the past two editions of the COVID-19 regulations).

The NSW Government is continuing to offer indirect support to commercial tenants who are experiencing financial stress because of COVID-19 via a new land tax relief package. Eligible commercial landlords will be able to apply for a land tax concession of up to 25%, if they provide rent reductions to eligible tenants under the Retail and Other Commercial Leases (COVID-19) Regulation (No.3) 2020, from 1 January 2021 to 28 March 2021. Applications will be open from 1 February - 30 April 2021. Applications for land tax concessions of up to 50% for 2020 are also still available for eligible landlords. Applications for 2020 will close on 31 March 2021.

Northern Territory

In the Northern Territory, protections for commercial tenants under the Tenancies Legislation Amendment Act 2020 are tied to the continuing operation of the Declaration of Public Health Emergency. On 23 December 2020, Health Minister Natasha Fyles published an extension of the declaration for a further 90 days, until 23 March 2021. The Northern Territory Government has stated that lessees and lessors are responsible for cooperating to sustain tenancies and keep people in their businesses. NT Consumer Affairs has strongly encouraged commercial tenants experiencing financial stress from the COVID-19 economic downturn to negotiate a solution with their property owner as soon as possible.

Queensland

The Queensland Government’s extension to the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 ended on 31 December 2020, and protections for retail tenants ceased on that date. However, the Queensland Government has committed to permanently establishing the Queensland Small Business Commissioner (QSBC). As work to complete this is underway, the Government continues to allow the QSBC to provide dispute assistance and mediation services. Commercial tenants and landlords can access dispute assistance and free mediation until 30 April 2021, and small businesses can lodge small business tenancy disputes until then.

South Australia

The South Australian Government’s COVID-19 response protections for commercial tenants ended on 3 January 2021. For rental disputes between lessors and affected lessees that relate to the COVID-19 pandemic and remain unresolved prior to 4 January 2021, the COVID-19 Emergency Response Act 2020 and COVID-19 Emergency Response (Commercial Leases No 2) Regulations 2020 will continue to have effect (where appropriate).

From 4 January 2021, disputes related to retail and commercial leases will revert to the Retail and Commercial Leases Act 1995 and Retail and Commercial Leases Regulations 2010, or other relevant legislation. Therefore, any breaches of the terms of a lease after 4 January 2021 may be dealt with by way of breach notice and regular enforcement measures, including distraint and eviction.

The Small Business Commissioner has cautioned retail and commercial tenants to ensure that rental commitments are paid in full from 4 January 2021, and that payments are clearly marked to indicate what period it is for. If commercial tenants are having difficulty making rental payments, the Commissioner urged them to start discussions with landlords as soon as possible. The Commissioner warned lessors to take independent legal advice prior to taking enforcement actions such as eviction and offered assistance to both lessees and lessors in resolving disputes.

Tasmania

The Tasmanian Government’s protections afforded to commercial tenants by the COVID-19 Disease Emergency (Commercial Leases) Act 2020 ceased on 31 January 2021. Consumer, Building and Occupational Services (CBOS) will continue to provide assistance to parties negotiating a solution in the event of a dispute, however mediation services for commercial tenancy disputes have ended. Other emergency protections offered during the financial hardship period have also concluded.

Victoria

On 22 December 2020, the Victorian Government further extended protections for small business tenants until 28 March 2021. The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Amendment Regulations 2020 extended the operation of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020, which would otherwise have expired on 31 December 2020.

The moratorium on commercial tenancy evictions for non-payment of rent will stay for small to medium enterprises that have experienced a minimum 30% reduction in turnover due to COVID-19, where the tenant has followed the process for applying for rent relief. A freeze on rent increases also remains during the moratorium.

The Victorian Small Business Commissioner (VSBC) will continue to provide a free mediation service for commercial tenants and landlords to resolve disputes over rent relief. Commercial tenants may also apply to the VSBC for a binding order for rent relief if their landlord fails to respond to the VSBC or doesn’t engage in mediation in good faith.

Small business tenants seeking rent relief from 1 January 2021 to 28 March 2021 will need to apply to their landlord in writing with evidence of their eligibility as soon as possible, as a landlord is only required to provide rent relief from this date of application. If a tenant has already made a request and is seeking further rent relief for this extended period, then they will need to make another request to their landlord supplying the required evidence.

Western Australia

On 10 September 2020, the Western Australian Government extended the emergency period under the Commercial Tenancies (COVID-19 Response) Act 2020 until 28 March 2021. The moratorium on evictions, freeze on rent increases, and code of conduct for small business commercial lease rent relief negotiations, will continue to apply via the Commercial Tenancies (COVID-19 Response) Amendment Regulations 2020 in a more targeted manner until this date. The protections will be targeted to apply only to those tenants who experience financial hardship because of the COVID-19 pandemic.

Commerce Minister John Quigley said the decision to extend the emergency period for a further six months was consistent with similar extensions announced in Victoria and South Australia. "While it's pleasing to see many businesses recovering economically, there are still others in COVID financial hardship," he said. "This targeted application of the Code acknowledges the resilience of many WA businesses while continuing to assist those that need the protection."

Small Business Minister Paul Papalia said extending the emergency period would allow struggling WA businesses to negotiate further rent relief with their landlords to provide additional breathing space as the WA economy continues to recover. “Since the introduction of the WA Code, the Small Business Commissioner has helped thousands of commercial landlords and small business tenants with their negotiations. Assistance with disputes will continue to be offered free of charge for all parties during this extended period,” Mr Papalia said.

On 29 January 2021, the WA Government made further refinements to the rules. The Commercial Tenancies (COVID-19 Response) Amendment Regulations 2021 continues protections for small commercial lessees after the end of the emergency period. Where disputes under Part 5 of the Commercial Tenancies (COVID-19 Response) Act 2020 are being dealt with by the Commissioner or the Tribunal, lessors will remain blocked from taking prohibited actions after the emergency period has ended.

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