Last night, the Legislative Council of the NSW State Government agreed to pass amendments to both the Residential Tenancies Act 2010 (NSW) and the Retail Leases Act 1994 (NSW) as a result of the COVID-19 Legislation Amendment (Emergency Measures) Bill 2020 (COVID-19 Bill). This is yet to receive assent but likely in the circumstances given the amendments are reasonable to protect the health, safety and welfare of tenants or residents.
Effectively, the changes to the legislation entitle the Minister to recommend to the Governor that regulations be made prohibiting a landlord/owner/proprietor from:
- Recovering possession of premises from a tenant or resident of the premises;
- Terminating any sort of tenancy arrangement (such as a residential tenancy agreement, retail or commercial lease), occupancy agreement or site agreement;
- Regulating or preventing the exercise of enforcement of another right of a landlord/owner/proprietor relating to the premises; and
- Exempt a tenant/resident/home owner from the operation of a provision of a relevant Act.
Interestingly, the definition of “relevant Act” for the purpose of the NSW legislation includes:
- Residential Tenancies Act 2010;
- Retail Leases Act 1994;
- Boarding Houses Act 2012;
- Residential (Land Lease) Communities Act 2013;
- Agricultural Tenancies Act 1990; and
- Any other Act relating to the leasing of premises or land for commercial purposes.
The Minister can only recommend that such regulations be made in circumstances where the NSW Parliament is not currently sitting and is not likely to sit within 2 weeks after the regulations are made and in the Minister’s opinion, the regulations are reasonable to protect the health, safety and welfare of tenants or residents under the Act.
Given we are now in the Stage 2 shutdown of the COVID-19 pandemic, both Houses of the NSW State Parliament have agreed to adjourn the sitting calendar until September 2020 (noting the Speaker would still be able to call upon the houses to sit at any time in the interests of the community). The effect of this is that the Minister can now recommend to the Governor that any or all of the above proposed regulations be made to the relevant Acts.
Generally, these changes will have a broader impact on the market as a whole (noting the stimulus packages being made available by the Federal Government and the relief being provided to certain parties by the Australian Banks).
Currently, the position at law is such that:
- Withholding Rent: generally, tenant’s cannot simply withhold rent (subject to any relief order issued by any Australian Government agency, including Local, State, Commonwealth or any authority (Authority) having jurisdiction over the relevant premises or relief measures commercially agreed between the relevant parties);
- Rent Abatement: rent abatement provisions are usually restricted to physical damage of premises, access issues (including inaccessibility) and do not cover contagion/pandemic events;
- Force Majeure: it is unusual to find a Force Majeure clause within a lease, however, these generally apply to construction and development suites of contracts (noting the common law does not recognise a force majeure clause in and of itself and the effect of the clause must indicate both the content of the concept and the consequences of the force majeure);
- Frustration: This doctrine operates to bring a contract to an end in circumstances where an intervening event has occurred, through no fault of the parties with the effect that the contractual obligations are impossible to perform or transform the obligation into a fundamentally different obligation. This is not easy to establish and is narrow in its application. The duration of the shut-down will need to be considered here and in the case of COVID-19 it is arguable that the inability to perform the contract on its terms is temporary. Frustration is also dealt with in Part 3.2 of the Australian Consumer Law and in the relevant State’s Fair Trading legislation; and
- Insurance: parties should contact their insurance brokers (and underwriters) to ascertain whether any shutdown of the relevant premises (including any loss of rent and/or business interruption) is covered by their insurances (noting any policy carve outs or excluded losses caused by quarantinable diseases or biosecurity reasons which is now especially relevant for the COVID-19 pandemic).
At HWLE, our COVID-19 think tank is made up of National Partners (and experts) in the Real Estate and Projects Group, Litigation, Construction, Corporate/Commercial and Insurance Groups who are currently considering in real time the national issues impacting our landlord and tenant clients in respect of the COVID-19 pandemic.
This article was written by Kendra McKay, Partner and Alexandra White, Partner.