Last updated: 16 March 2021

Real Estate

COVID-19 Rent & Termination Arrangements by State/Territory

2021 Update: What you need to know as COVID-19 measures for commercial and residential tenancies are coming to an end

For an overview of developments as they occurred up to February 2021, see below.

Note that since our latest update as at 16 March 2021, other temporary measures may have expired but in some cases, relief for eligible tenants has been preserved. Please contact us if you need further advice.

The National Cabinet announced the Mandatory Code of Conduct for Commercial Tenancies on 7 April 2020, which will be implemented by each of the States and Territories.

Across Australia, the States and Territories have moved to announce proposals for the implementation of the Code as well as proposals in relation to residential tenancies and relief packages to alleviate the impacts of COVID-19 on landlords and tenants. Our high-level summary of the implemented or announced changes will evolve as governments implement those arrangements.

The National Cabinet Mandatory Code of Conduct for commercial leasing was released by the Prime Minister on 7 April 2020. The purpose of the Code is to set out good faith leasing principles which will apply to commercial tenancies (retail, office and industrial).

Who does it apply to?

The Code applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic, where the tenant is eligible for the JobKeeper programme and has an annual turnover of up to $50 million (SME Tenant).

The turnover threshold will be applied to franchises at the franchisee level and in respect of retail corporate groups at the group level (rather than the retail outlet level).

However, while not mandatory for tenancies which do not meet the JobKeeper eligibility and turnover criteria, landlords are encouraged to apply the Code to all leasing arrangements for affected businesses, having fair regard to the size and financial structure of those businesses.

How long does it apply for?

It applies from a date after 3 April 2020 (to be defined by each jurisdiction) for the period during which the JobKeeper programme is operational (i.e. until the end of the pandemic period). The JobKeeper programme is currently in place for 6 months, subject to any appropriate extension or reduction.

How will it be enforced?

The Code will be given effect through relevant state and territory legislation or regulation as appropriate. There is no detail yet regarding the timing or language of such legislation or regulation. It is possible that regulations (or declarations in some jurisdictions) will be made in relation to retail leases for the enforcement of the code of conduct for retail tenancies, but there is no comparable existing legislation for office or industrial leases and so it remains to be seen how such legislation will work.

It is also intended that there will be State- or Territory-based Industry Code Administration Committees, comprising representatives from relevant industry bodies representing landlord, tenant and SME interests, with an independent chair appointed by the relevant State or Territory Government. The role of the committee will be primarily to encourage application of the Code.

What are the principles?

The overarching principles set out in the Code include:

  • landlords and tenants share a common interest to preserve the lease and facilitate the resumption of normal trading activities;
  • landlords and tenants are required to negotiate and work towards achieving mutually satisfactory outcomes and negotiate in good faith;
  • landlords and tenants will act in an open, honest and transparent manner and provide sufficient and accurate information to enable the parties to reach agreement consistent with the Code;
  • the arrangements must be proportionate to the impact of the COVID-19 pandemic on the tenant;
  • landlords and tenants will assist each other in their respective dealings with other relevant third parties such as government, utilities and financiers in order to achieve outcomes consistent with the Code;
  • landlords must not seek to permanently mitigate their risk in relation to default in negotiating the temporary arrangements; and
  • each lease must be dealt with on a case-by-case basis having regard to the hardship suffered by the SME tenant (including any insolvency) and the terms of the lease.

What can be agreed between the landlord and the tenant?

The Code provides that the following leasing principles should be applied as soon as practicable on a case-by-case basis:

  • landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period);
  • tenants must continue to comply with the lease terms, subject to any temporary arrangements agreed with the landlord. A material breach will mean that the tenant is not protected under the Code;
  • landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the rent ordinarily payable, on a case-by-case basis, based on the reduction in the tenant's trade for the pandemic period and a subsequent recovery period;
  • rental waivers must constitute no less than 50% of the total reduction in rent and may be greater where necessary to allow the tenant to fulfil its ongoing obligations, but regard must also be had to the landlord's financial ability to provide such waivers. Tenants may waive the 50% minimum waiver requirement;
  • any remaining relief may be in the form of a waiver or a deferral;
  • deferred rent must be paid over the balance of the lease term, but if the balance of the lease term is less than 24 months, then the tenant may pay the deferred rent over a 24 month period, commencing after the end of the pandemic period (i.e. deferred rent could continue to be paid after the lease expiry);
  • any reduction in statutory charges or insurance costs incurred by the landlord will be passed on to the tenant in the appropriate proportion under the terms of the lease;
  • if the landlord receives any benefit due to the deferral of loan payments by its financier, the landlord should seek to share that benefit with the tenant in a proportionate manner;
  • landlords should seek to waive recovery of any other expense (such as cleaning costs or marketing levies) or outgoings payable by a tenant during the period the tenant is not trading and landlords may reduce services provided to the premises in these circumstances;
  • if the agreement between the landlord and tenant requires any repayments, then the repayment should be made over an extended period of time and should not commence until the earlier of the end of pandemic period or existing lease expiry, and taking into account a reasonable recovery period;
  • no fees or other charges should accrue on waived or deferred rent;
  • no interest is payable on waived rent although interest may accrue on deferred rent provided it is not punitive;
  • landlords must not draw on a tenant's security for the non-payment of rent during pandemic period or a reasonable recovery period;
  • tenants should be given the option to extend their lease term for a period equivalent of the rent waiver and/or deferral period;
  • landlords will not apply rent increases (except for retail leases based on turnover rent) during the pandemic period; and
  • tenants will not be in breach of the lease if they reduce opening hours or cease to trade during the pandemic period.

These principles offer a starting point for landlords and tenants when seeking to negotiate rent relief due to COVID-19. While they are binding on leases with SME Tenants, they also provide good guidance for landlords seeking to provide relief and for other commercial tenants experiencing hardship.

What if no agreement is reached?

If landlords and tenants cannot reach agreement, the matter may be referred by either party to applicable leasing dispute resolution processes for binding mediation. It is unclear what will happen if the parties cannot reach agreement at mediation; presumably there will be a right to escalate the matter through the relevant Courts and tribunals. Alternatively, the "binding mediation" may take the form of an arbitration where the arbiter determines the resolution without a further escalation regime.

Landlords and tenants must not use mediation to prolong or frustrate the process.

How will it work in practice?

It is intended that landlords will agree bespoke, temporary agreements with each SME Tenant documenting the rent relief and which takes into account the particular circumstances on a case-by-case basis.

Landlords and tenants who are not bound by the Code can use the principles set out in the Code as a framework for agreeing and documenting any relief which may be necessary and appropriate for those leases.

To demonstrate hardship, tenants will need to provide "sufficient and accurate information", which, as specified in the Code, includes information generated from an accounting system and information provided to and/or received from a financial institution. See here for a suggested list of the sorts of information which tenants may be required to provide.

Case study

The tenant has experienced a 60% reduction in turnover since 1 March, attributable to COVID-19. The tenant's usual turnover is less than $50 million. The lease is therefore subject to the mandatory code. The tenant seeks rent relief from the landlord and provides relevant information to support its position.

In accordance with the Code, the landlord and the tenant agree:

  • 30% waiver of rent during the pandemic period;
  • 30% deferred rent to be repaid over the remaining three years of the lease term;
  • tenant will continue to pay 40% of the rent during the pandemic period;
  • the landlord will not terminate the lease due to non-payment of rent or call on the bank guarantee; and
  • a fixed rent increase which was scheduled to take place on 1 May will not occur.

This agreement complies with the Code because:

  • the total cash flow relief is proportionate to the loss in turnover;
  • half the rent relief is in the form of a rent waiver with the remainder as a rent deferral;
  • there is a moratorium on termination and calling on security during the pandemic period; and
  • the scheduled rent review during the pandemic period will not take place.

What is the difference between a waiver and a deferral?

A waiver means the amount of rent payable is waived and may not be recouped by the landlord at a later time. A failure to pay the waived rent will not be a breach by the tenant.

A deferral means the amount of rent payable is deferred and must be paid by the tenant at a later time. A failure to pay the deferred rent at the later time would be a breach by the tenant.

What next?

We will need to see the terms of the relevant State- and Territory-based legislation to understand the full implications of the Code. However, the Code will enable parties to commence negotiating appropriate rent relief in line with the principles set out in the Code.

See here for the types of matters which parties could consider including in their agreements.

Current position as at 24 February 2021: On 31 January 2021, the Leases (Commercial and Retail) COVID-19 Emergency Response Declaration 2020 (No. 1) (First Declaration) which was extended by the Leases (Commercial and Retail) COVID-19 Emergency Response Declaration 2020 (No. 2) (Second Declaration) expired. No further declarations have been made.

Eligibility: Prescribed breaches occurring between 1 April 2020 and 27 September 2020 continue to be governed by the First Declaration and breaches between 28 September 2020 and 31 January 2021 continue to be governed by the Second Declaration, provided they do not relate to lease agreements entered into from 7 April 2020. Any prescribed breaches occurring after 31 January 2021 (or for lease agreements entered into from 7 April 2020) will revert back to being governed by the Leases (Commercial and Retail) Act 2001 (ACT).

Eviction bans: Where the First Declaration or the Second Declaration continue to apply, the landlord is prevented from issuing a termination notice or taking prescribed action (such as eviction of the tenant, exercising a right of re-entry or seeking damages) unless the landlord has first engaged in good faith negotiations with the tenant – see negotiation requirements, as set out below. Where the Declarations no longer apply, the landlord must follow the process set out in the Leases (Commercial and Retail) Act 2001 (ACT).

Negotiation requirements for rent arrangements: Where the First Declaration or the Second Declaration continue to apply, the landlord has an obligation to negotiate in good faith with an impacted tenant that has committed a prescribed breach under a prescribed lease. Negotiations must have regard to the leasing principles contained in the National Cabinet Mandatory Code of Conduct. An impacted tenant is a tenant that has qualified for the JobKeeper program at any point during the prescribed period, and has an annual business turnover of less than $50 million in the 2018-2019 financial year. An impacted tenant commits a prescribed breach where they fail to pay rent, outgoings or other amounts due under the prescribed lease or to operate the business during the hours required under that lease. Where the Declarations no longer apply, the landlord must follow the requirements of the Leases (Commercial and Retail) Act 2001 (ACT).

Additional relief: On 31 January 2021, the Rates (Commercial Land) Exemption 2020 (No. 3) (Instrument) which provided a rates exemption for eligible owners of commercial land expired. However, Applications for the period 1 April 2020 to 31 January 2021 can continue to be made until 31 March 2021.

The exemption is available to owners of commercial land with an average unimproved value (AUV) of $2 million or less, and to owners of units on commercial land, where the AUV of the units (AUVU) is $2 million or less if the owner, or a business tenant, operating a business on the land has suffered a turnover reduction during that period of at least 30% due to the effect of COVID-19. The affected owner operating a business on their land is eligible for a rates exemption of up to 80% per quarter (maximum $8,000). The owner with affected business tenants operating on their land is eligible for a rates exemption of up to 50% of the total value of the reduction in rent for that quarter ($8,000). An eligible owner is entitled to more than one exemption per property, up to the applicable cap. The Instrument applies to each unit of a building with multiple commercial units with an AUVU of $2 million or less.

The Exemption interacts with the Declaration. As part of the rates exemption application, commercial and retail owners will be required to demonstrate that they have negotiated in good faith with their tenants, and have abided by the Declaration and the Code of Conduct. The ACT Government has indicated that this administrative requirement must be met to progress an application for rates exemption.

What's next?: No further declarations have been announced, but the ACT Government will continue to monitor the impacts of COVID-19.

More information:

Current position as at 24 February 2021: The Retail and Other Commercial Leases (COVID-19) Regulation 2020 was made with respect to retail and commercial leases on 24 April 2020. The Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2020, which was effective as at 3 July 2020, clarified some of the uncertainties in the NSW Regulation, particularly in relation to whether certain clauses were intended to apply to "impacted lessees" only or apply to commercial and retail leases even where the lessee is not impacted. The Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (Second NSW Regulation) replaced the NSW Regulation on 24 October 2020 (being the expiry date of the NSW Regulation). The Second NSW Regulation replicated the NSW Regulation almost entirely, with some minor changes to deal with the renegotiation of previous lease relief deals and to extend the expiry date to 31 December 2020. On 1 January 2021 the Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 (Third NSW Regulation) commenced, extending the expiry of the regime with respect to a more restricted category of impacted lessees and leases.

Eligibility: The Third NSW Regulation applies to "commercial leases", being a retail shop lease (as defined in the Retail Leases Act 1994). Leases entered into after 24 April 2020, other than a lease entered into by means of an option to extend or renew on the same terms and leases under the Agricultural Tenancies Act 1990 are not covered by the NSW Regulation.

Under the Third NSW Regulation, a lessee is eligible for relief if the lessee qualifies for the JobKeeper Scheme and had turnover for the 2018-2019 financial year which was less than $5 million:

  • if the lessee is a franchisee, in relation to the turnover at the subject premises;
  • if the lessee is a corporate member of a group (ie. related bodies corporate), in relation to the turnover of the group; or
  • in any other case, the turnover of the business conducted by the lessee.

Turnover includes turnover from internet sales or services.

It should be noted that the revision to the definition of "impacted lessee" applies to taking prescribed actions for breaches post 1 January 2021. In other words, an impacted lessee in the 24 April 2020 to 31 December 2020 period has the protections offered by the repealed regulations during that period even if the lessee is no longer an "impacted lessee" (see section 14 of the Third Regulation).

Eviction and rent increase bans: Lessor must not exercise its rights under the lease, including its rights to terminate or recover possession, for non-payment of rent, outgoings or for not opening for business for the specified hours until 28 March 2021. The landlord must not increase the rent until 31 December 2020. A lessor may take any of the above actions on the basis of a failure to pay rent if the lessee does not comply with sub-clause 4 (a party must negotiate within 14 days if asked by the other party), sub-clause 5 (lessee to give evidence) or sub-clause 6 (parties to negotiate having regard to the economic impact of COVID-19 and the Mandatory Code of Conduct).

Negotiation requirements for rent arrangements: A lessor must not take action for a failure to pay rent unless the lessor has negotiated the rent and other terms of the commercial lease. The negotiation must be in good faith and have regard to the economic impacts of the COVID-19 pandemic and the leasing principles set out in the Code. A lessee may make subsequent requests for a renegotiation of the rent under the Third NSW Regulation until  28 March 2021 as long as the renegotiation does not relate to a period for which rent has already been reduced, waived or deferred. A party asked to participate in negotiations regarding the rent and other lease terms must commence negotiations within 14 days of the request (or earlier as agreed).

Additional relief: If a lessee is required to pay land tax, statutory charges or insurance under the lease and the amount payable by the lessor is reduced, the lessee is exempted from the obligation to pay those amounts under the lease in the same proportion as the reduction received by the lessor.

Revenue NSW has announced and enacted land tax concessions of up to 25% for current year and deferral of outstanding payments for 3 months for eligible landlords if they pass savings on to tenants.

Key changes made in the Third NSW Regulation:

  • More restrictive eligibility criteria for consideration as an "impacted lessee" (ie. from $50m turnover to $5m and retail shop leases only);
  • No longer restricts prescribed actions against commercial leases which are not retail shop leases from 1 January 2021; and
  • Extension of the prescribed period to 28 March 2021.

More information:

Current position as at 17 February 2021: Legislation was enacted on Friday 24 April (with effect from 21 April 2020) which enables the Minister to issue during the Emergency Period (initially 18 March 2020 to 25 June 2020 and subject to any further extensions) ‘modification notices’ affecting leases and tenancies arrangements. A modification notice may affect tenancies arrangements which would not otherwise be subject to the provisions in the Law of Property Act 2000 and Business Tenancies (Fair Dealings) Act 2003 (NT Tenancies Legislation). The Business Tenancies COVID-19 Modification Notice (Business Tenancies Modification Notice) was gazetted on 28 April 2020, with effect from 18 March 2020. The Business Tenancies Modification Notice was most recently extended to 23 March 2021 by notice entitled "Extension of Operation of Declaration of Public Health Emergency" dated 8 December 2020 and published in Gazette S55 of 11 December 2020.

Eligibility: Announced – applies to tenants suffering "substantial hardship due to the coronavirus crisis". Further details of the eligibility criteria may be set out in a future gazetted modification notice, noting that the Business Tenancies Modification Notice did not set out any additional eligibility threshold requirements.

Eviction and rent increase bans: The legislation does not impose a complete moratorium on actions for possession by a landlord. Instead, the Business Tenancies Modification Notice requires that a landlord must engage in a minimum period, of at least 30 business days, of good faith negotiation with a tenant to allow the tenant to remain in the premises before the landlord issues a notice to quit premises. However, landlords are not required to negotiate prior to issuing a quit premises notice to a tenant if a drug premises order has been made in respect of the premises, or the landlord has a reasonable belief the tenant has engaged in or intends to engage in illegal conduct on the premises, or has caused or will cause substantial damage to the premises in breach of the business lease.

Applications for re-entry may be made to the court of competent jurisdiction (Supreme Court’s jurisdiction amended to a monetary amount in excess of $200,000). For applications made to the Local Court (claims of $200,000 or less), alternative dispute provisions will apply. The Business Tenancies Modification Notice also sets out the cost implications of any application for a warrant of possession made during the emergency period. The party that will be ordered to carry the costs of the application on a standard basis depends on the behaviour of the parties, and the merits of the application.

Negotiation requirements for rent arrangements: Announced: requirement to negotiate in accordance with Code. Landlords who negotiate changes to arrangements may be eligible for payroll tax and utilities charges relief, and the Business Tenancies Modification Notice requires 30 business days of good faith negotiation prior to a notice to quit premises being made unless an exception applies. However, the Business Tenancies Modification notice is silent on matters such as the subject matter of negotiations, information to be provided by the parties to enable negotiations, etc.

Additional relief: Payroll tax and utilities charges relief

What's next?: Further modification notices setting out the details of additional measures to be implemented may be gazetted in the future. 

Current position as at 16 February 2020: Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld Regulation) commenced on 28 May 2020 and were subsequently amended by:

  • the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Amendment Regulation 2020 (First Amendments) on 29 September 2020;
  • COVID-19 Emergency Response and Other Legislation Amendment Act 2020 on 4 December 2020 (Second Amendments); and
  • Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Amendment Regulation 2021 on 5 February 2021 (Third Amendments).

Eligibility: The Qld Regulation applies to a retail shop lease under the Retail Shop Leases Act 1994, or other leases under which the leased premises are to be wholly or predominantly used for carrying on a business. This will include commercial leases and extends to some franchise arrangements.

On commencement, the Qld Regulation applied to "affected leases" for the duration of the "response period", being the period from 29 March 2020 to 30 September 2020. The First Amendments have extended some (but not all of the legislative protections) to an "extension period", which runs from 1 October 2020 to 31 December 2020.

An "affected lease" during the response period is:

  • a lease that is binding as at 29 March 2020;
  • for an SME entity (i.e. a not-for-profit body or an entity, where its previous financial year or expected current financial year's turnover is less than $50 million and the Third Amendments preserved the $50 million threshold, despite the Commonwealth's change to the definition of SME entity which increased the thresholds for other purposes not related to leasing); and
  • who is eligible for the JobKeeper Scheme.

During the extension period, to be an "affected lease" the test is heightened and the tenant must be eligible for the updated JobKeeper scheme which applies for the period 28 September 2020 to 4 January 2021. The JobKeeper scheme for this period requires (amongst other things) tenants to show an actual reduction in turnover for July to September 2020 when compared to the same quarter in 2019. It is no longer sufficient for tenants to "anticipate" a reduction in turnover, as was the case initially. 

While the Second Amendments extended the application of the Qld Regulation to 30 April 2021, the period under which landlord is required to provide relief is unchanged and relief is not mandated past 31 December 2020 (or where the tenant was not eligible for the extension period,  30 September 2020).

Eviction and rent increase bans: Rent increase ban for the duration of the response period and the extension period for affected leases. Rent reviews can be carried out during the response period and extension period, but can only take effect from 1 January 2021 (or 1 October 2020 for leases which do not qualify during the extension period). The default position is that a landlord under an affected lease must not take a "prescribed action" either during or after the response period (or extension period, if that applies) against the tenant based on a failure by the tenant to pay rent or outgoings during the response period (or extension period, if that applies) or to remain open during required business hours, unless an exception applies. "Prescribed actions" include terminating a lease or taking eviction action, initiating court or tribunal proceedings to exercise or enforce a right by the landlord under the lease, claiming damages, enforcing security, claiming on a bank guarantee or enforcing a right of the landlord under the lease.  The Second Amendments have clarified that "prescribed action" cannot be taken after the end of the response period (or if applicable, the extension period) in respect of rent or outgoings that relate to the response period (or if applicable, the extension period) unless the "prescribed action" is in accordance with a COVID-19 variation of lease.

Negotiation requirements for rent arrangements: All parties to an "affected lease" will be required to negotiate a variation of the lease, upon the request of one party to the lease. Separate requests may be made for the response period and the extension period. Following the request, parties must share sufficient information related to the negotiation as soon as practicable. Within 30 days of receipt of sufficient information, the landlord must offer the tenant a reduction in the amount of rent payable, and any other proposed changes to the lease conditions.

For the response period, any rent relief offered must provide at least a 50% complete waiver in rent, and any rent deferrals cannot be required to be paid prior to 1 October 2020 and must be paid off over a period of 2-3 years (with no interest accruing on deferred rent).

For the extension period, a landlord is not required to offer a waiver in rent (though nothing prevents tenants seeking a waiver) and the rent relief may be deferred in full (with repayments to be made over 2-3 years with no interest accruing on the deferred rent). Bank guarantees may be automatically retained by the landlord until the rent deferral repayment period ends. Following the receipt of the offer, the parties may then continue to negotiate until either agreement is reached or the matter is referred for mediation.

The Amendments clarify that the deferral of rent repayments will be separated and that repayment of the deferrals for:

  • the response period may begin on 1 October 2020 and may end 2-3 years from this date; and
  • the extension period may begin on 1 January 2021 and may end 2-3 years from this date.

Legal action in a court or tribunal commenced by landlords between 29 March 2020 and 28 May 2020 for a "prescribed action" must be put on hold until after 30 September 2020 for those leases that cease to be an affected lease on 1 October 2020 and until 31 December 2020 for leases that remain affected leases on 1 October 2020. During either the response period or the extension period, if parties to an affected lease cannot reach agreement by way of negotiation, then either party may submit a Dispute Notice to the Office of the Small Business Commissioner. The Commissioner will then appoint a mediator, who will formally mediate the dispute in accordance with the procedure set out in the Regulation. A person may only apply to QCAT for relief after the mediation process has been completed or if a settlement agreement is breached by parties to it. 

The Regulation will currently end on 30 April 2021.

Additional relief: Announced: 25% land tax discount for the 2019/2020 and 2020/2021 assessment year and a 3-month deferral of land tax liability for the 2020/2021 assessment year and a waiver of the 2% land tax foreign surcharge for foreign entities for the 2019/2020 assessment year. The land tax rebate is for eligible properties only and applications need to be made by 31 October 2020 for the 2019/2020 assessment year and by 26 February 2021 for the 2020/2021 assessment year. A land tax rebate will only be provided if the landlord has given rent relief to its tenant or has been unable to find a tenant due to COVID-19 impacts and it also complies with Qld COVID-19 leasing principles for all tenants (which are separate leasing principles from the Mandatory Code of Conduct and apply to all tenants).

More information:

Greater clarity for Queensland landlords and tenants: the long-awaited COVID-19 Regulation is now in force

COVID-19 tenancy regulations extended in Queensland: check if the extensions apply to your leases

Current position as at 23 February 2021:

Legislation and Regulations introduced as part of the SA Government's response to the COVID-19 pandemic ended on 3 January 2021.

Eligibility: The Regulation applied to an "affected lessee", being a tenant facing financial hardship with turnover less than $50 million in the period to 3 January 2021.

Eviction and rent increase bans: Any breaches of the terms of a commercial tenancy after 4 January 2021 can be dealt with by way of breach notice and normal enforcement measures, including distraint and eviction.

Negotiation requirements for rent arrangements: From 4 January 2021, disputes relating to commercial tenancies will revert to the Retail and Commercial Leases Act 1995 and Retail and Commercial Leases Regulations 2010 or other relevant legislation. For rental disputes between that relate to the COVID-19 pandemic and remain unresolved prior to 4 January 2021, the COVID-19 Emergency Response Act 2020 (Act) and COVID-19 Emergency Response (Commercial Leases No 2) Regulations 2020 (Regulations) will continue to have effect (where appropriate).

Additional relief: Landlords who provided tenants impacted by COVID-19 with rent relief may be eligible for a reduction of up to 50% on land tax payable on a parcel of land in the 2019-20 tax year, however the full benefit of that relief must have been passed on to an affected tenant.  Further information is available online from the South Australian Government.

Current position as at 12 January 2021:

The COVID-19 Disease Emergency (Commercial Leases) Act 2020 (Tasmanian Act) and the COVID-19 Disease Emergency (Commercial Leases) Regulations 2020 (Tasmanian Regulations) are in force (the Tasmanian scheme). The Tasmanian scheme currently applies from 1 April 2020 to 31 January 2021 (Financial Hardship Period).

Eligibility: The Tasmanian scheme applies to "protected leases", being a commercial lease to a tenant who is or becomes an eligible person during the Financial Hardship Period, regardless of when the lease was entered into. Importantly, a tenant will remain eligible even where they cease to be an eligible person during the Financial Hardship Period.

An "eligible person" is:

  • a person who is or becomes:
    • entitled to participate in the JobKeeper scheme; and
    • is an SME entity for the purposes of the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Act 2020 of the Commonwealth (an SME entity is an entity that carries on a business or is a non-profit body that has, or the corporate group of which it is a part has, a likely annual turnover in the current financial year of less than $50 million, or annual turnover for the 2018-2019 financial year was less than $50 million); or
  • who satisfies any other prescribed criteria.

A Protected Lease may include licences because the definition of "Lease" is not limited to agreements for exclusive possession. However, the Tasmanian Act excludes leases held for the predominant purpose of conducting a business on behalf of the lessor and may exclude other types of leases in the Tasmanian Regulations (but does not currently do so).

Eviction and rent increase bans: The Tasmanian Act bans, during the Financial Hardship Period, rent increases for Protected Leases, and a lessor taking any "Prohibited Lessor Action" in relation to a Protected Lease on the grounds of a relevant breach of the lease during the Financial Hardship Period. Under the Tasmanian Act, relevant breaches include a failure to pay rent or other monies, meet performance criteria, pay outgoings, or altering trading hours. Prohibited Lessor Action includes exercising, or attempting to exercise, any power or remedies against the tenant, including eviction.

Negotiation requirements for rent arrangements: Parties to a Protected Lease must enter into and conduct negotiations during the Financial Hardship Period in relation to the rent payable (on either party's request), or the renewal or exercise of an option (upon a lessee's request). The parties are required to provide the information necessary to enable negotiation, while also prohibiting misleading or deceptive conduct in the course of negotiation or the misuse of information provided by parties to the negotiation. The Tasmanian scheme does not set out the types of information that a lessee must provide to demonstrate financial hardship however, guidance is provided on the Tasmanian Government Consumer, Building and Occupational Services (CBOS) website, which includes:

  • information extracted from an accounting system or from a BAS;
  • the lessee's bank balance;
  • projections of future cash flow;
  • profit and loss statements, financial balance sheets or year-to-date statements; and
  • financial information provided by a third party such as an accountant.

The Tasmanian scheme requires all negotiations to take into account the individual circumstances of the parties, the degree of financial hardship of both the lessee and lessor, whether the lease is about to expire or has expired, and whether the lessee or lessor are in administration or receivership (or are about to be). In addition, there is an obligation for the parties to renegotiate rent in good faith (if rent renegotiation is requested by one party) and also an obligation to take into account the National Code of Conduct.

The Tasmanian Act does not set out the type of rent relief a lessor must offer, whether there must be a minimum percentage in the form of a waiver, or whether any reduction in rent must be proportional to a lessee's reduction in trade. However, the National Code of Conduct (which the parties must take into account) covers off those aspects. The Tasmanian Act does not expressly allow subsequent requests for additional relief. However, the Tasmanian Regulations make it clear that such requests can be made provided it is at least 3 months since the last renegotiations of rent concluded.

Dispute resolution processes: If the negotiations between the parties fail, either party can apply to CBOS for mediation or otherwise, apply for arbitration. The mediator may require a party to provide relevant information and if that party fails to do so without reasonable excuse, that party may receive a fine (maximum $34,400 for a body corporate and up to $6,880 for an individual). Each party must bear its own costs however, a mediator may make a determination on the payment of the mediator's fees. The Tasmanian Act does not go into detail as to the mediation process or possible outcomes of same.

Additional relief: On a lessee's request, the landlord must extend a Protected Lease during the Financial Hardship Period until at least the end of the Financial Hardship Period. In addition, the Land Tax Amendment Act commenced on 1 July 2020. It provides for a land tax exemption for adversely impacted commercial properties. This exemption is available if the Commissioner is satisfied that the owner of the commercial land has been adversely financially impacted during the pandemic period, in a manner that is unexpected and not insignificant, because the amount of income payable to the owner in respect of the land has reduced or the land has not been leased or licensed as a result of the effects of COVID-19.

Current position as at 11 January 2021: The COVID-19 Omnibus (Emergency Measures) Act 2020 (Victorian Act) is in place, and the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Victorian Regulations) have been made. On 29 September 2020 the Act was extended and the Victorian Regulations amended. The Victorian Regulations were further amended on 22 December 2020.  The Victorian Regulations now apply from 29 March 2020 to 28 March 2021 (Relevant Period). 

Eligibility: The Victorian Regulations apply to "eligible leases" as defined in the Victorian Act and prescribed by the Victorian Regulations, being retail leases, or non-retail commercial leases or licences under which the tenant:

  • carries on a business or is a non-profit body;
  • has, or the corporate group of which it is a part has, a likely annual turnover in the current financial year of less than $50 million (or annual turnover for the 2018-2019 financial year was less than $50 million);
  • is an entity who qualifies for, and is a participant in, the JobKeeper Scheme.

The Victorian Regulations do not apply to leases entered into after 29 March 2020 or to leases for various agricultural purposes.

Eviction and rent increase bans: During the Relevant Period, if a tenant has made a request to its landlord in accordance with the methodology for negotiation of rent relief set out in the Victorian Regulations and complies with any subsequent agreement to vary the lease:

  • the tenant is entitled to protection from termination for non-payment of rent or non-payment of outgoings;
  • the lease cannot be terminated for business closures or a reduction in trading hours; and
  • the landlord cannot seek to call on any security that it may hold to recover any shortfall in rent or outgoings.
  • Additionally, during the Relevant Period, a landlord cannot increase the rent (other than where the rent is determined by reference to turnover) unless the parties otherwise agree in writing.

    Negotiation requirements for rent arrangements: The Victorian Regulation sets out a methodology for a landlord and tenant to negotiate rent relief for eligible leases, as well as the documentary evidence required in support of a tenant's request. For example, the Victorian Regulations now provide guidance on the information a tenant must produce to demonstrate a fall in turnover. Generally, there is a provision that a landlord and tenant under an eligible lease must cooperate and act reasonably and in good faith in discussions and actions relating to the requirements of the Victorian Regulations. While the landlord's offer must be based on all the circumstances of the lease, not less than 50% of the rent relief offered must be in the form of a waiver of rent unless otherwise agreed in writing. There is also now a requirement for the landlord to provide rent relief in an amount which is at least proportional to the fall in turnover experienced by the tenant. Importantly, as a consequence of the amended Victorian Regulations, a tenant can only claim rent relief from the date of making a compliant request for relief.

    Dispute resolution processes: A dispute about the matters in the Victorian Regulations may be referred for mediation. The Victorian Regulations set out the requirements for the application, including supporting documentation that is required and the processes that the Small Business Commission must adopt. If a resolution is not reached at mediation, a tenant may subsequently apply to the Small Business Commission for a binding order, which the Commission may make if the landlord has failed to respond to a dispute notice or failed to engage in the mediation in good faith. The Small Business Commission has published guidelines in respect of the operation of the Victorian Tenancy Relief Scheme.

    Additional entitlements to rent relief: A tenant may apply for further relief if its financial circumstances have materially changed, an existing arrangement is not, at a minimum, proportional to the fall in the tenant's annual turnover or, the existing arrangement does not apply until 28 March 2021.

    Effect of tenant losing eligibility to JobKeeper: The Victorian Regulations set out the circumstances in which a tenant may continue to be protected under the Tenancy Relief Scheme where that tenant has:

    • an existing rent relief arrangement but then becomes ineligible for JobKeeper; or
    • applied for rent relief but, before reaching an agreement on a rent relief arrangement, becomes ineligible for JobKeeper.

    Additional land tax relief: A 25% land tax discount is available to a landlord for 2020 (and also for 2021 for residential landlords) and a deferral of the balance of land tax payments is available until 31 March 2021 (or 30 November 2021 for residential landlords) if a landlord has provided appropriate rent relief to its tenant. Land tax relief is available for both residential and commercial properties, however for commercial properties to be eligible, the property must be rented to a tenant with an annual turnover of up to $50 million, and the tenant must be eligible for the JobKeeper scheme. A slightly different test applies for owner/occupiers operating a licensed pub, club or restaurant.

    Landlords may also be eligible for an increased land tax discount up to 50% for 2020 where they have provided their tenant (or majority of tenants for the relevant land) with at least a 50% rent wavier for at least 3 months.

    Owner/occupiers of commercial premises are also be eligible for a 25% land tax discount for 2020 and a deferral of the balance until 31 March 2021 if the owner/occupier has an annual turnover of up to $50 million, and is eligible for the JobKeeper scheme. Again, a slightly different test applies for owner/occupiers operating a licensed pub, club or restaurant.

    A $60 million hardship fund has also been established to provide payments of up to $3,000 per tenancy for small commercial landlords.

    More information: 

    Current position as at 23 February 2021: Legislation and measures in force.

    Eligibility: Small commercial leases ie. retail shop leases, leases for small businesses, incorporated associations or other leases prescribed by Regulation, which includes leases to Aboriginal and Torres Strait Islander Corporations where the land or premises has a commercial purpose.

    Eviction and rent increase bans: A ban on rent increases and evictions (rent arrears, failure to trade and other prescribed defaults) applies to all "small commercial leases" for the period from 30 March 2020 to 29 September 2020. For the period 29 September 2020 to 28 March 2021, the ban on eviction and rent increase bans only applies to "eligible tenants" under the WA Code of Conduct (see below definition of "eligible tenants").

    Negotiation requirements for rent arrangements: The WA Code of Conduct applies to eligible tenants (being tenants with an annual turnover under $50million who qualify for Jobkeeper) and landlords. Eligible tenants can request rent relief from their landlords during the emergency period, who must offer rent relief within 14 days of the request. Parties can apply to the Small Business Development Commission or the State Administrative Tribunal to resolve a dispute relating to or arising out of the new legislation, the Code of Conduct or financial hardship.

    Additional relief: No announced rental relief payments as at  23 February 2021 for commercial tenancies.

    Eligible commercial landlords can apply to the Small Business Development Corporation for a land tax relief grant where they can demonstrate they have waived a small business tenant’s rent and outgoings for a minimum of three months (and will not seek to recover those amounts). Grants are equal to 25% of land tax bill and are paid to successful applicants 6 weeks from the date the application was submitted. The application period for the grant is scheduled to end 30 October 2020 or earlier, if the funds run out.

    What's next?: The "emergency period" is due to expire on 28 March 2021.

    Frustration of leases

    In response to the current pandemic, the Australian Government mandated closure of certain businesses including cinemas, theatres, pubs, galleries, museums, beauty parlours and salons, gyms and other "non-essential" industries. In the absence of an express right under a lease (for example a clause allowing for rent abatement or a force majeure clause), landlords and tenants alike are turning their minds to whether their lease can be frustrated if the tenant is unable to trade or use the property for the purpose intended, and permitted, under the lease.

    In general, the common law doctrine of frustration brings a contract to an end where, through no fault of the parties, a post-contract event has either made contractual obligations impossible to perform or it fundamentally transforms an obligation into a radically different obligation.

    Can a lease be frustrated?

    The history of frustration and its applicability to leases is complicated: frustration has proven difficult to establish and is relatively narrow in scope. Whether a lease can be frustrated depends on the nature of the business, and the purpose of the business' use of the premises.

    Case law indicates however that a temporary or transient change generally will not be sufficient to frustrate a lease. Courts have also been reluctant to take hardship into consideration. Although the applicability of frustration to leases remains relatively untested in Australian case law, it is an area which is likely to see significant development if forced closures become protracted.

    The onus of proving that the lease has been frustrated clearly rests with the party (landlord or tenant) seeking to excuse themselves from performance under the lease.

    Closure, partial trading and working from home

    We are increasingly seeing arguments for frustration where a business has been forced into circumstances of partial trading. A situation where this may arise could be a restaurant which has been mandated to close its doors to patrons, but still offers take-away from the premises.

    An argument for frustration in the case of a partial rather than a total shutdown of the provision of goods and services is relatively weaker. In the case of a restaurant for example, the provision of food to customers, whether this is by means of take-away rather than dine-in services, is not a fundamentally different obligation or impossible to perform.

    In general, if a business continues or is able to continue to use the premises, and/or is operating from the premises, then a successful argument for frustration is highly improbable.

    We are also seeing many businesses continuing to operate while encouraging their employees to work remotely. The physical workplaces of many private offices, including legal firms for example, are closed as a result of COVID-19, however many of these businesses continue to provide services to their clients with their employees working from home. Despite the physical premises being unable to be used, there is evidently no frustration of the lease as the business continues to operate.

    For tenants

    As a tenant seeking to rely on the doctrine of frustration, you should first assess your business's ability to operate from the premises and whether or not you are still able to sell goods or provide your services by alternative means. If you are still operating, or are able to operate, all or part of your business, or if you are still advertising your services, then it is unlikely you will be able to claim frustration of your lease. Tenants in this situation still have an obligation to pay rent as well as any other monies due and payable under the lease (unless an express provision in the lease or Government intervention determines otherwise).

    If the tenant can no longer operate its business from the premises, for example a cinema, the tenant would be in a stronger position to claim that the lease is frustrated. This too will depend on the length of the mandatory closure.

    For landlords

    As a landlord with a tenant claiming the lease is frustrated, you should consider if the tenant's business relies solely on operating from the premises or if the business can still operate, albeit partially, with employees working remotely or with reduced services.

    What are the consequences of frustration?

    If frustration does apply, the lease will be automatically terminated at law upon the occurrence of the frustrating event.

    In the ACT, Northern Territory, Queensland, Tasmania and Western Australia where the common law applies, the obligations of all parties under the lease will cease. This includes the payment of rent and outgoings (if any). New South Wales, South Australia and Victoria all have legislation outlining the process.

    Lease termination may result in harsh financial impacts on both the tenant and the landlord, and parties should review their financial and economic situations, including in relation to insurance, in case such a situation arises.