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11 Jun 2020

Real estate: 5 Minute Fix 10

By The Real Estate Team

Get your 5 Minute Fix of real estate news. This issue: COVID-19 measures across the nation; electronic signing and audiovisual witnessing; NSW acts on building cladding; and FIRB thresholds temporarily reduced.

NSW: Regulations released giving effect to Mandatory Code of Conduct

NSW landlords and tenants are now on surer footing for COVID-19 related rent relief with the release of Regulations.

NSW is the first State or Territory to make legislation giving effect to the Mandatory Code of Conduct, with the Retail and Other Commercial Leases (COVID-19) Regulation 2020 taking effect on Friday, 24 April 2020, and applying for six months until 24 October 2020.

Landlords and SME tenants are now fully armed to begin talking about their arrangements over the next six months; if discussions have already commenced, then they will need to check that they are complying with the Regulation. Either way, any changes must be documented and monitored.

Learn more in our COVID-19 response.

Victoria: Commercial leases and licences during COVID-19

The Victorian State Revenue Office of Victoria will give effect to the following land tax relief measures which have been introduced in response to COVID-19:

  • Landowners with at least one non-residential property and total taxable landholdings below $1M can defer their 2020 land tax payment until 31 March 2021. Landowners that have already paid their 2020 land tax can request a return of the tax paid, but this will need to be paid in full by 30 March 2021.
  • Landlords who provide rent relief to tenants affected by COVID-19 may receive a 25% reduction on the 2020 land tax payable on the property. For landlords of commercial property, the property must be leased to a tenant with an annual turnover of up to $50M that is eligible for the JobKeeper Payment.
  • Landlords receiving land tax relief can defer any remaining land tax payable for 2020 to 31 March 2021.

Click here to read about the tax relief measures implemented in response to COVID-19 in more detail.

Landlords not immune from new COVID-19 legislation

The Commercial Tenancies (Covid-19 Response) Act (CTA) is now in force and the Western Australian Parliament has also introduced the Commercial Tenancies (COVID-19 Response (Early Termination)) Bill (Early Termination Bill).

The CTA imposes a six-month moratorium commencing on 30 March 2020 for evictions and a freeze on rent increases.

The Early Termination Bill, if passed by Parliament, will give tenants a right to terminate a lease if they are in severe financial hardship as a result of the COVID-19 pandemic. The Bill's debate was adjourned in Parliament's Lower House, and current indications are that the Bill is unlikely to pass through Parliament and therefore will not become law in WA.

In addition, Schedule 1 of the Commercial Tenancies (COVID-19 Response) Regulations (Code) is now in force in WA.

Eligible tenants under small commercial leases can now request rent relief from their landlords, who must then offer rent relief within 14 days of the request or any other period agreed between the parties. At least 50% of the rent relief offered must be in the form of a rent waiver during the emergency period, and the parties must then commence good faith negotiations to agree on the rent relief to apply.

A tenant's request for rent relief must be accompanied by:

  • a statement by the tenant that the tenant's lease is a small commercial lease, and the tenant is an eligible tenant;
  • sufficient and accurate information evidencing:
    • that the tenant is an eligible tenant; and
    • the reduction in the tenant's turnover associated with the business conducted at the premises under the small commercial lease during the emergency period.

Any rent relief agreed by the landlord and tenant must be confirmed in a written agreement. If an eligible tenant is unable to conduct their business on the premises for any part of the emergency period, then the landlord must consider waiving recovery of any outgoings or other expense payable by the tenant to the landlord for the period that the tenant was unable to conduct their business.

If a tenant and landlord previously agreed rent relief for the emergency period, the agreement will still stand. However, if the tenant believes that the rent relief provided under that agreement is less favourable than rent relief available under the Code, the tenant can make a written request from its landlord for rent relief under the Code in which case the processes outlined above will apply.

The Code specifies principles that apply to rent relief negotiations between landlords and tenants – eg. to co-operate, act honestly, reasonably and in good faith, and not make onerous demands for information from each other. If parties are unable to reach agreement on rent relief under the Code, the dispute resolution processes under the CTA will apply – namely, the landlord or tenant can apply to either the Small Business Commissioner or State Administrative Tribunal to resolve the dispute

Landlords should familiarise themselves with their rights and obligations under the Code before responding to rent relief requests from tenants and commencing mandatory negotiations. Landlords who have already entered into agreements with tenants for the emergency period will also need to be alive to requests from eligible tenants to re-negotiate rent relief under the Code.

NSW: 2020 land tax COVID-19 relief – guidelines 

The NSW Government has introduced measures to enable landlords with tenants in financial distress to apply for a reduction in their land tax liability of up to 25% for the 2020 calendar year, provided that:

  • rent relief at least equal to the land tax reduction is provided to those tenants and the land tax is directly related to the property for which rent has been reduced; and
  • rent relief is not required to be paid back at a later date. If a landlord has agreed to a deferral of rent regime they are not eligible for the land tax reduction.

Learn more in our COVID-19 response.

Queensland: Residential tenancies during COVID-19

The Residential Tenancies and Rooming Accommodation (COVID-19 Emergency Response) Regulation 2020 was passed as a temporary measure until 31 December 2020. It is intended to assist residential tenants who have suffered excessive hardship because of the COVID-19 pandemic by (among other things):

  • imposing a moratorium on the eviction of a tenant for the failure to pay rent as required under an Agreement, provided the failure is due to excessive hardship;
  • requiring landlords to offer an extension to 30 September 2020 or an earlier date requested by the tenant (with the Agreement to continue on the same terms) if a fixed term tenancy agreement expires on or before 29 September 2020 and the tenant is suffering excessive hardship;
  • prohibiting landlords from giving tenants a notice to remedy a breach if the rent has remained unpaid for 7 days and the landlord should reasonably be aware that the tenant is suffering excessive hardship; and
  • prescribing penalties that will be imposed on landlords acting contrary to the provisions of the Act.

Queensland: COVID-19 updates to body corporate legislation

The Justice and Other Legislation (COVID-19 Emergency Response) Amendment Act 2020 amends over 20 different Acts in Queensland, including in respect of body corporate legislation as follows:

Body Corporate and Community Management Act 1997:

  • Bodies corporate may temporarily adopt sinking fund budgets that do not meet the requirement to reserve an appropriate proportional share of amounts necessary to be accumulated to meet anticipated major expenditure over at least the next nine years after the body corporate’s current financial year, thereby allowing bodies corporate to reduce contributions payable by owners;
  • the requirement for bodies corporate to initiate proceedings to recover lot owner contributions that have been outstanding for two years is relaxed, thereby enabling bodies corporate to defer commencing debt recovery action against lot owners experiencing financial distress due to COVID-19;
  • Committees may postpone the due date for contributions, to provide lot owners suffering financial hardship as a result of COVID-19 with additional time to pay their contributions;
  • Bodies corporate are prevented from charging penalty interest on outstanding lot owner contributions; and
  • the maximum amounts that bodies corporate can borrow when authorised by ordinary resolution are doubled.

Building Units and Group Titles Act 1980:

  • Body corporate committees may postpone the due date for proprietor contributions; and
  • Proprietors suffering financial hardship as a result of COVID-19 are granted additional time to pay contributions.

Queensland: COVID-19 Regulations – Queensland allows documents to be signed electronically and witnessed via audiovisual link 

Queensland has now passed a sweeping package of regulations that allow deeds, mortgages, general powers of attorney, affidavits and declarations to be signed electronically on a temporary basis. Like NSW, the ACT and Victoria, the changes also permit documents to be witnessed via audiovisual (AV) link as a result of the COVID-19 pandemic.

Significantly, the temporary regulations have unequivocally abrogated the common law requirement that a deed had to be written on paper or parchment and removes the requirement for a deed signed by an individual to be witnessed.

Key points

  • On 23 April 2020, the COVID-19 Emergency Response Act 2020 created regulation-making powers in relation to particular matters including the signing and witnessing of documents, the certification of matters by signatories or witnesses and the making of a document in a particular way or form.
  • On 15 May 2020, the Queensland Parliament passed the Justice Legislation (COVID-19 Emergency Response—Wills and Enduring Documents) Regulation 2020 to allow wills and enduring documents to be witnessed via AV link during the COVID-19 pandemic.
  • On 22 May 2020, the Justice Legislation (COVID-19 Emergency Response—Wills and Enduring Documents) Amendment Regulation 2020 has expanded the class of documents that can be witnessed via AV link and allows documents (including deeds) to be signed electronically.
  • The regulations will expire on 31 December 2020 and will be limited to having effect in Queensland.

Victoria: COVID-19 Regulations – electronic signing and witnessing

The COVID-19 Omnibus (Emergency Measures) (Electronic Signing and Witnessing) Regulations 2020 were made on 12 May 2020 and are now in force. The regulations modify the following Acts to provide for electronic signatures and witnessing of documents via audio visual link on a temporary basis:

  • Electronic Transactions (Victoria) Act 2000 (ETA);
  • Oaths and Affirmations Act 2018;
  • Powers of Attorney Act 2014; and
  • Wills Act 1997.

In broad terms, the new regulations provide for:

  • the electronic execution of deeds and mortgages – sections 5 and 6;
  • remote witnessing (including via audio visual link) of documents under the ETA – section 10;
  • execution on different copies of a document – section 12; and
  • witnessing the signing of statutory declarations, powers of attorney and wills via audio visual link – Parts 3, 4 and 5.

For further detail regarding electronic signing and witnessing in Victoria, click here.

ACT: Leases (Commercial and Retail) Covid-19 Emergency Response Declaration 2020

On 11 May 2020 the ACT Government created the missing parts for ACT landlords and tenants seeking to renegotiate their arrangements in response to the COVID-19 pandemic. The Leases (Commercial and Retail) COVID-19 Emergency Response Commercial Leases Declaration (Commercial Leases Declaration) together with accompanying Guidance Notes introduce temporary measures for commercial tenants, which will expire on 30 September 2020.

Landlords and tenants financially impacted by COVID-19 in the Australian Capital Territory should therefore be assessing their options now, and ensuring they comply with these new requirements for their negotiations.

Commercial Leases Declaration

Which Commercial Leases are subject to the declaration?

The Commercial Leases Declaration applies where the tenant is an "impacted tenant" under a lease to which the Leases (Commercial and Retail) Act 2001 (ACT) (Leases Act) applies.

An impacted tenant is a tenant who:

  • 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.

The Commercial Leases Declaration only applies where an impacted tenant commits a prescribed breach under a prescribed lease during the prescribed period.

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. The breach must have occurred during the prescribed period.

A prescribed lease is one to which the Leases Act applies and that was entered into before 7 April 2020.

Under the Commercial Leases Declaration, a landlord must not:

  • issue a termination notice; or
  • take any prescribed action,

unless the landlord has engaged in good faith negotiations with the tenant.

The Commercial Leases Declaration defines prescribed action as the taking of action by a landlord which includes (but is not limited to) the following:

  • eviction of the tenant from, or exercise a right of re-entry to premises under the lease;
  • forfeiture;
  • damages;
  • require payment of penalty interest or a fee or charge on or related to unpaid rent;
  • possession of the premises;
  • recovery of a security bond or other amount under the lease;
  • any other remedy otherwise available against the tenant under a Territory law.

While commercially many landlords are likely to be seeking to embark on good faith negotiations with an impacted tenant during the prescribed period, there is no mandatory requirement to do so under the Declaration until the impacted tenant has first committed a prescribed breach.

The Commercial Leases Declaration requires that the good faith negotiations must have regard to the principles contained within the Code of Conduct (SME Commercial Leasing Principles during COVID-19).

Victoria: COVID-19 – land tax relief 

The Victorian State Revenue Office of Victoria will give effect to the following land tax relief measures which have been introduced in response to COVID-19:

  • Landowners with at least one non-residential property and total taxable landholdings below $1M can defer their 2020 land tax payment until 31 March 2021. Landowners that have already paid their 2020 land tax can request a return of the tax paid, but this will need to be paid in full by 30 March 2021.
  • Landlords who provide rent relief to tenants affected by COVID-19 may receive a 25% reduction on the 2020 land tax payable on the property. For landlords of commercial property, the property must be leased to a tenant with an annual turnover of up to $50M that is eligible for the JobKeeper Payment.
  • Landlords receiving land tax relief can defer any remaining land tax payable for 2020 to 31 March 2021.

Click here to read about the tax relief measures implemented in response to COVID-19 in more detail.

ACT: Rate relief for landlords

The ACT Government has introduced some rate relief measures aimed to assist commercial landlords for rates charged after 1 April 2020 for up to 6 months based on a tiered category system where the commercial building has an unimproved value of $2 million or below.

There is a tiered category system as follows:

  • Category 1: Businesses partially or not affected. Business tenants should continue to pay rent;
  • Category 2: Businesses significantly affected (at least 30% reduction in business income) but still operating; and
  • Category 3: Businesses who have effectively shut down operations (at least 80% reduction in business income).

For landlords:

  • with a Category 2 tenant, assistance will be up to 25% of the rent reduction, capped per quarter at the lesser of $5,000 (or around $380 per week) or total of the quarterly rates bill; and
  • with a Category 3 tenant, assistance will be 50% of the rent reduction, capped per quarter at the lesser of $8,000 (or around $615 per week) or total of the quarterly rates bill.

Thus, under the scheme, where a commercial landlord has reached agreement with a Category 2 or Category 3 tenant to reduce rent, the ACT Government will provide a rebate to that landlord which is up to 50% of the amount the landlord has taken off the tenant's rent, but with the rebate capped as noted above.

The level of assistance provided will depend on the extent to which the tenant has been affected and the level of rent reduction that has been agreed between the parties.

NSW: Building cladding – amendments to Home Building Regulation 2014

The Home Building Amendment (Miscellaneous) Regulation 2020 was notified on 1 May 2020.

The Regulation amends cl 69A of the Home Building Regulation 2014 to provide that the failure of external cladding of a building to comply with the performance requirements of the National Construction Code for fire resistance and fire safety for that building is a major defect in residential building work. Accordingly, the extended warranty period of 6 years (rather than 2 years) under the Home Building Act 1989 applies.

NSW: When your tenants come knocking: a landlord's guide to re-negotiating leases when the regulations don't apply

While the introduction of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 and Mandatory Code of Conduct have brought some certainty to landlords with smaller commercial tenants, those landlords with tenants who don't sit under the Regulation and Code have been left to wander in the quagmire of "good faith". What do you do if your tenant asks for rent relief? Eva Oraham and Paul Boutakos have identified five steps to take when you want to negotiate in a way that leaves your tenant goodwill, revenue streams and cash reserves all intact.

NSW: Service NSW commercial lease support hub

To assist with the implementation of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 and Mandatory Code of Conduct, Service NSW has created a commercial lease support hub which sets out general information and support for commercial tenants and landlords managing rental payments during the COVID-19 pandemic including explaining, amongst other things, the:

  • eligibility criteria and documentation a commercial tenant must collate and provide to a landlord when requesting a rent reduction; and
  • NSW Government's guidelines regarding the COVID-19 land tax relief for commercial landlords.

You can access the commercial lease support hub at this Service NSW website.

FIRB – monetary screening thresholds temporarily reduced to $0

In response to the COVID-19 pandemic, the monetary screening thresholds for all foreign investments under the Foreign Acquisitions and Takeovers Act 1975 have temporarily been reduced to $0. Relevant actions taken after 10:30pm AEDT on 29 March 2020 will require approval from the Foreign Investment Review Board (FIRB) before the transaction may proceed, regardless of the nature of the foreign investor.

Any conditions placed by the FIRB on an investment proposal which is required to be screened by the temporary changes will remain in place for as long as required to protect the national interest.

The FIRB now also has the discretion to extend the statutory timeframes for reviewing an application from 30 days to up to 6 months to ensure the FIRB has enough time to screen applications.

Contact your usual Clayton Utz adviser to discuss if your transaction will be impacted, or click here to read the FIRB’s Guidance Note 53.

STOP PRESS: Significant Australian foreign investment reforms announced.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.