Landlords will need to carefully consider these changes, once implemented, to ensure that they do not seek to enforce contractual rights that they have which have been overridden by these changes while they are in operation.
How the Emergency Measures Act will affect landlords and tenants
The Act allows for the introduction of regulations under various legislation, including the Residential Tenancies Act 2010 (NSW) and the Retail Leases Act 1994 (NSW) (collectively the Acts), for the purpose of responding to the public health emergency caused by COVID-19. The regulations will enable the making of laws that will stop landowners from:
- Repossessing premises: The effect could potentially mean that a landlord does not have the right to go in and take possession for previous defaults;
- Terminating a lease: The effect could potentially extend to a tenant who is already in breach of its obligations for reasons that are not directly connected to the COVID-19 outbreak;
- Exercising or enforcing other rights that the landlord has under a lease or a relevant Act relating to the leased premises or land: The effect could mean that, for example:
- a landlord is prohibited from calling on a bank guarantee, cash deposit or other form of security provided by the tenant;
- a landlord is prohibited from enforcing trading obligations, acknowledging in the current environment many landlords have already stopped requiring compliance with this obligation;
- a landlord is prohibited from stopping a rental abatement if a tenant is in default (a large number of leases dis-entitle rental abatements whilst in default); and
- repair and maintenance obligations are paused;
- Requiring the payment of rent or outgoings:In this regard, the regulations permit changes to be made that would exempt a tenant, or a class of tenants, from the operation of a provision of an Act or agreement relating to the lease or licence of the premises or land, which could include the paying of rent, outgoings and other monies for example.
At this point in time, the Act only grants power to introduce new regulations and it is not law.
Reinforcing the emergency nature of any regulations made under the Act, all regulations will have "sunset" dates to make it clear that they are to be in place for the COVID-19 pandemic situation only. The sunset date will be 6 months after the commencement date of the regulation, unless an earlier date is decided by resolution of either House of Parliament.
With regard to retail tenancies, the Act amends the Retail Leases Act 1994 (NSW) by introducing a new Part 11 at section 87(5)(c) but also refers to "any other Act relating to the leasing of premises or land for commercial purposes". We are seeking clarification as to whether this reference is intended to also capture commercial leases. This would seem unlikely given most commercial tenants are still able to operate from their leased premises (while practising social distancing), or have the capacity to continue their day-to-day business operations from home.
The Act does not consider the entire supply chain of a leasing enterprise and the implications that the regulations, if introduced, will have on landlords who still have rates, land tax and mortgage payments to make and/or reporting obligations to investors and capital joint venture parties. The Prime Minister last night (24th March 2020) in his address did make it very clear that the entire supply chain is being considered and we expect that further clarification will be provided today.
Rather importantly, the Act doesn’t put a halt on any of the landlord obligations. For example, it does not address the situation where a landlord may have an obligation to ensure all common areas are open, operating, clean and, in the case of a public restroom, fully stocked. In the midst of this current pandemic, if a landlord took measures to shut down a common area, it may be in breach of its lease obligations with a major tenant.
Further, the Act also doesn’t consider what will happen when the new regulations, if introduced, come to an end. It is silent on whether a landlord will have a right to go in and take possession for previous defaults, require the repayment of unpaid rent, outgoings and other monies that are in arrears or whether interest can be charged on outstanding amounts.
Of course, with the ever changing and evolving situation, this may change and we will keep you updated.