COVID 19 Mandatory Code of Conduct for Retail & Commercial Leases
On 7 April 2020, the National Cabinet implemented a Mandatory Commercial Leasing Code of Conduct (“the Code of Conduct”) to operate during the COVID19 pandemic. Now that businesses have or are soon reopening, the implications of the Code of Conduct for Landlords and Tenants is pertinent.
On 7 April 2020, the National Cabinet implemented a Mandatory Commercial Leasing Code of Conduct (“the Code of Conduct”) to operate during the COVID19 pandemic.
On 24 April 2020 the Code of Conduct was given legislative force within New South Wales by a new Regulation to the Retail Leases Act 1994 being the Retail and Other Commercial Leases (COVID-19) Regulation 2020 and by an amendment to the Conveyancing (General) Regulation 2018. The Code of Conduct is in place for six months from when the Regulation commenced (“the Prescribed Period”).
Now that businesses have or are soon reopening, the implications of the Code of Conduct for Landlords and Tenants is pertinent.
The principles of the Code of Conduct are set out below:
Who does the Code of Conduct apply to?
The Code of Conduct applies to Landlords and Tenants where:
(a) the Tenant is an enterprise with a turnover less than $50 million in the financial year 2018-2019; and
(b) the Tenant qualifies for the Jobseeker Scheme. A Tenant who meets the above criteria is considered an “Impacted Lessee” under the legislation.
The Code of Conduct applies to Retail and Commercial Leases including offices and industrial premises.
What are the Landlord’s obligations if their Tenant is considered an ‘Impacted Lessee’?
If a Tenant meets the criteria of being an Impacted Lessee and fails to:
(a) pay rent and/or outgoings
(b) keep the business operating during the usual hours specified in the lease,
the Landlord is prohibited from:
(a) re-entering into possession of the premises;
(b) claiming damages;
(c) applying any rental increases otherwise due under the Lease;
(d) charging interest or fees in relation to unpaid rent (such as legal costs as required under many commercial and retail leases);
(e) drawing on the security bond;
(f) terminating the Lease.
The Landlord must also pass on to the Tenant any reductions in Land Tax, statutory charges such as Council rates and insurances, in the proportion of the reduction received by the Landlord, in the event that the Tenant is required to pay those outgoings under the Lease.
What are a Tenant's obligations if they are an “Impacted Lessee”?
Clause 7 of the Retail and Other Leases COVID19 Regulation 2020 provides that the Tenant (or the Landlord) may request the other party to renegotiate the rent payable under the Lease. The parties are required to negotiate in good faith and have regards to the economic impacts of the COVID19 pandemic on the Impacted Lessee together with the principles set out in the National Code of Conduct.
The National Code of Conduct
Under the Code of Conduct, when negotiating a temporary arrangement during the Prescribed Period, the following principles should be applied on a case-by-case basis:
Landlords must not terminate a Lease due to non-payment of rent;
Tenants must remain committed to fulfilling the terms of their Lease;
Landlords must offer Tenants a reduction in rent proportionate to the reduction in the Tenant’s trade during the COVID19 pandemic and any recovery period. The reduction in rent can be in the form of waivers and deferments of up to 100% of the amount ordinarily payable under the Lease, assessed on a case-by-case basis.
Rental waivers must constitute no less than 50% of the total reduction in rent payable under Principle 3 but waivers must also have regard to the Landlord's financial ability to provide such waiver and Tenants may waive the requirement for a 50% minimum waiver by agreement.
Payments of rental deferments by a Tenant must be enticed over the balance of the term of the Lease and for a period of no less than 24 months, whichever is greater, unless otherwise agreed by the parties.
Any reduction in statutory charges or insurance received by the Landlord must be passed on to the Tenant in the appropriate portion, if the Tenant pays the relevant outgoings under the Lease.
A Landlord should seek to share any benefit it receives due to deferral of loan payments provided by financial institutions in a proportionate manner.
Landlords should, where appropriate, seek to waive recovery of any other expense or outgoing payable by a Tenant under a lease term during a period where a Tenant is not able to trade.
If negotiated arrangements under this Code necessitate repayment, this should occur over an extended period in order to avoid placing undue financial burden on the Tenant. No repayment should commence until the earlier of the COVID19 pandemic ending or the existing Lease expiring and taking into account a reasonable subsequent recovery period.
No fees, interests or charges should be applied with respect to rent waived under Principles 3 and 4, nor may interest be charged.
Landlords must not draw on a Tenants’ security including a cash bond, bank guarantee or personal guarantee, for the non-payment of rent during the COVID19 pandemic.
The Tenant should be provided with an opportunity to extend its Lease for an equivalent period of the rent waiver or deferment period.
Landlords agree to freeze rental increases during the duration of the COVID19 pandemic.
Landlords may not levy any penalties if Tenants reduce opening hours or cease trading during the pandemic contrary to the Lease terms.
Dispute Resolution
In the event that negotiations between a Landlord and an Impacted Lessee are unsuccessful, the Retail Leases Act has been amended so that the dispute resolution provisions applicable to Retail Leases also now apply to Impacted Commercial Leases, during the Prescribed Period.
Accordingly, the parties are required to participate in a mediation conducted by the Small Business Commissioner. If the mediation is unsuccessful then a certificate will be issued by the Small Business Commissioner after which proceedings can be commenced in a Court or Tribunal seeking orders to recover possession of the premises and enforce any other rights, including the right to the rental arrears or the enforcement of the principles contained in the Mandatory Code of Conduct.
Land tax
On 21 April 2020 Revenue NSW advised that as part of the economic package released by the New South Wales Government a reduction of up to 25% of Land Tax payable on a parcel of land in the 2020 tax year will be available where:
the land is used for business or residential purposes;
the property is leased a residential tenant or business with an annual turnover of up to $50 million who can demonstrate financial distress resulting from the COVID19 pandemic;
the Landlord reduced the rent of the affected tenant;
the land tax is directly related to the property for which the rent has been reduced;
Financial distress is considered to be:
(a) a 30% drop in revenue for commercial tenants;
(b) a 25% drop household income for residential tenants.
The application can be made online at https://www.service.nsw.gov.au/transaction/apply-covid-19-land-tax-relief
Where to go from here
It is important to act quickly to commence a dialogue between Landlord’s and Tenants to first ascertain whether the Tenant has qualified for the Jobkeeper Allowance and therefore is an Impacted Lessee.
It is important that both parties provide free and unfettered financial transparency during this time. The Landlord’s financial impact is also a consideration under principles 4 and 7. Landlord’s should not expect financial disclosure to only flow from their Tenant.
Landlords should also have consideration to the practicalities businesses face during the “recovery period”. Now that businesses have begun reopening, a Lessee may not fully know the impact the COVID 19 pandemic has had on its business immediately upon reopening and it could change on a monthly basis.
The Mandatory Code of Conduct was not only implemented to ensure businesses can reopen. The Code of Conduct, if used correctly to share the burden of the COVID 19 pandemic, may prevent the oversupply of retail and commercial properties, driving down market rents, where Tenants have no alternative but to close their business and vacate the rented premises.
Where it is evident that an agreement is unlikely to be reached without a formal mediation, it is in the interest of both parties for an application for mediation to be lodged as a matter of urgency.
When an agreement has been reached it should be documented in a formal Variation of Lease registered with Land Registry Services (if the Lease was registered). Whilst Landlords will be unable to recoup the cost of preparation of the Variation of Lease from its Tenant, a formal Variation of Lease will be required to extend the term of the Lease and to ensure any deferred rent can be recovered in the event of a future default.
If you require any advice in relation to the Mandatory Code of Conduct please do not hesitate to contact Kate MacDonald who acts for both Landlords and Tenants in respect of commercial, retail and industrial property.
Kate MacDonald
Solicitor Director
Pets in Strata buildings
Sydney Apartment Buildings Win Appeal to Prohibit Pets from their Strata Schemes
On 27 May 2020 the Appeal Panel of the Civil & Administrative Tribunal New South Wales (“NCAT”) handed down two decisions commenced by Owners Corporations to appeal previous decisions made by NCAT in September and November 2019.
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Sydney Apartment Buildings Win Appeal to Prohibit Pets from their Strata Schemes
On 27 May 2020 the Appeal Panel of the Civil & Administrative Tribunal New South Wales (“NCAT”) handed down two decisions commenced by Owners Corporations to appeal previous decisions made by NCAT in September and November 2019.
The decision of The Owners - Strata Plan No. 58068 v Cooper [2020] NSWCATAP 96 concerns the Horizon Apartment Building in Darlinghurst. In 2019 the Owners Corporation sought orders for the removal of a 13-year-old miniature schnauzer, named Angus, owned by Mr and Mrs Cooper from their strata lot. Mr and Mrs Cooper brought a cross-application and were successful in their proceedings at first instant. The decision was handed down on 21 November 2019 where NCAT ordered that By-Law 14 of the Strata Scheme (prohibiting pets) was harsh unconscionable and oppressive and declared the By-Law invalid by reason of operation Sections 139 and 150 of the Strata Schemes Management Act 2015 (NSW) (“SSMA”).
The decision of The Owners of Strata Plan No 55773 v Roden; Spiers v The Owners of Strata Plan No 77953 [2020] NSWCATAP 95 concern two decisions encapsulating similar legal issues concerning the Elan Apartment Building in Rushcutters Bay and the Cappella Apartment Building in Kensington respectively. Mr Roden, an owner within the Elan Strata Scheme, whilst not the owner of a pet, wished to acquire a dog despite the Elan’s bylaw prohibiting pets. Ms Spiers owned two dogs, Daisy and Fergus, in a building where a by-law only permitted one small animal.
The Owners Strata Plan No. 58068 v Cooper [2020] NSWCATAP 96 (“the Cooper Case”)
In the Cooper case, the Appeal was allowed and Orders were made for the removal of Angus from Mr and Mrs Cooper’s lot in the Strata Scheme. The Appeal Panel in making this decision found that NCAT was in error in concluding By-Law 14 was harsh, unreasonable, and oppressive. The Appeal Panel had regard to:
(a) the fact that when a motion was put at an AGM to allow for a small dog, cat or caged bird or fish, the By-Law was defeated by 89.82% of the Owners, by unit entitlement, who voted;
(b) Mr and Mrs Cooper were aware when they acquired their lot that a By-Law was registered which prohibited the keeping of a pet within the Strata Scheme;
(c) NCAT, at the first instant, erred in considering subjective evidence about Angus such as the nature of his breed and suitability for strata living. The analysis by NCAT did not take into account all of the circumstances relevant to determine whether or not By-Law 14 was harsh unconscionable or oppressive on an objective basis.
(d) There was no evidence to suggest that there was any medical, psychological or other need of Mr and Mrs Cooper, to keep Angus within their lot.
The Owners of Strata Plan No. 55773 v Roden (“the Roden Case”); Spiers v The Owners of Strata Plan No. 77953 [2020] NSWCATAP 95 (“the Spiers Case”)
The Roden Case
In the Roden case, the Appeal brought by The Owners - Strata Plan No 55773 was allowed and the Order declaring By-Law 14 invalid was set aside.
The Elan building had a no pet policy from its inception, however after several owners had acquired pets contrary to the By-Law, a new By-Law was passed, being By-Law 14, which provided that Owners must not keep a pet on common property or in their lot unless the dog is a guide dog or a hearing dog however the By-Law did not apply to residents who owned an animal and lived in the Elan Building as at 22 March 2013, who were permitted to keep their animals if they complied with a number of conditions. The By-Law was passed at an Extraordinary General Meeting on 6 June 2013 by a majority of 81.85%.
The Appeal Panel, in determining the proper construction of Section 139 (1) of the SSMA, considered that the Act specifically prevented the making of by-laws concerning dealings relating to a lot, children and the keeping of assistance animals.
NCAT found at first instant that:
(a) a by-law which prevents the keeping of an animal as a pet is contrary to an owners’ basic habitation right and the use and enjoyment of their respective lot.
(b) A by-law is oppressive because it does not involve or reflect a balanced consideration of all lot owners or occupiers and it operates only in the interests of lot owners who are opposed to pet ownership.
The Appeal Panel found that that the above decision was in error. The test as to whether a by-law is harsh, unconscionable or oppressive is an objective test. The degree of severity must be higher than the standard of “unreasonable” as the word “unreasonable” is used elsewhere in the SSMA and therefore was not intended by the legislator. The Appeal Panel therefore found that the By-law was not harsh, unconscionable or oppressive.
The Spiers Case
In 2015, the Cappella Apartment Building in Kensington passed a by-law which provided for the keeping of one small animal with the consent of the Owners Corporation and provided a weight criteria as to what would be defined as a “small animal”. In 2018, Mrs Spiers acquired her lot. Between Mrs Spiers exchanging contracts to acquire her lot and moving into her apartment in April 2018, Mrs Spiers acquired a second dog.
Mrs Spiers submitted an application for the keeping of two animals, Fergus and Daisy, however the Strata Managing Agent advised Mrs Spiers that she could only be permitted to keep one animal within her lot. Mrs Spiers submitted that the By-Law was harsh unconscionable and oppressive because it did not take into account the different sizes of units within the complex, with her apartment enjoying a large terrace. This submission was rejected at first instant and on Appeal as there was no “yardstick” to measure whether the By-Law was harsh, unconscionable or oppressive in an objective sense and it was unclear how this would operate in practice.
Mrs Spiers’ Appeal was dismissed and she was ordered to remove Fergus from her lot.
Conclusion
It is unknown whether any of the above lot owners will Appeal the decision to the Supreme Court of New South Wales. The latest decisions are of high importance as many strata buildings within New South Wales have had, since inception, a “no pet policy” contained within in their by-laws. Whilst some strata schemes have been lax over the years enforcing the no pet by-law, other strata schemes have been meticulous with bringing proceedings in NCAT to seek the removal of pets contrary to the by-law.
Since late 2019 case law had indicated that the “no pet policy” may have been harsh, oppressive and unconscionable and therefore invalid and unenforceable which would have allowed lot owners to keep animals within their lot.
Whilst the position has now been made clear that such a by-law is not harsh, unconscionable or oppressive, these cases may be distinguished if an Owners Corporation has permitted pets and subsequently attempts to implement a no pet policy as the new by-law would remove a right already enjoyed by lot owners.
If you have any queries in relation to this article please do not hesitate to contact our Kate MacDonald.
Kate MacDonald
Solicitor Director
COVID19 Employment Law Update
With the initial relaxation of the COVID19 restrictions, we now look towards the “new COVID19 Normal” which must include returning to work. Can an employer require an employee to now return to work?
Introduction
As you would undoubtedly be aware, the New South Wales Government has modified the Public Health Restriction Order to allow for gatherings of not more than 10 persons in public places, allowing for bootcamps to resume and some cafes and restaurants to reopen. In addition, you may now have 5 visitors attend to your place of residence.
With the initial relaxation of the COVID19 restrictions, we now look towards the “new COVID19 Normal” which must include returning to work.
Can an employer require an employee to now return to work?
There has been a slight relaxation of the work from home requirement when the modified restrictions came into effect on 15 May 2020.
The Public Health COVID19 Restrictions on Gathering and Movement Order (No 2) 2020 [NSW] which provides that:
“The Minister directs that an employer must allow an employee to work at the person’s place of residence where it is reasonably practical to do so”.
This direction modified the previous order issued on 30 March 2020 where a person was restricted from leaving their place of residence without a reasonable excuse. A reasonable excuse in relation to work commitments was:
“Travelling for the purposes of work if the person cannot work from the person’s place of residence”.
In other words, the Public Health Order which came into effect on 30 March 2020 emphatically required a person to work from home if they were able. This position has now changed where a business can have regard to whether it is reasonably practical for a person to work from home.
This variation to the Public Health Order now provides greater consideration as to the individual needs of the business. In many cases working from home was possible, however, it may have only been viable for a limited period of time and come at some cost to the business (whether it be financial, loss of productively or a decrease in the standard of customer service).
If it is not reasonably practical for your employees to work from home, you may request that they return to work at your business’ usual place of business. You should however have regard to your obligations as an employer to provide a safe work environment.
Are employers liable if employees contract COVID19 whilst undertaking work duties and what should employers do to minimise liability?
The National Cabinet has agreed upon a 10 point National COVID19 Safe Work Principles that include, amongst others, that:
“As COVID19 restrictions are gradually relaxed, businesses, workers and other duty holders must work together to adapt and promote safe work practices, consistent with advice from health authorities, to ensure their workplaces are ready for the social distancing and exemplary hygiene measures that will be an important part of the transition.”
Employers and employees must work to “actively control the transmission of COVID19 in the workplace” and businesses must prepare for the possibility that there will be cases of COVID19 in the workplace and have a plan in place to “respond immediately, appropriately, efficiently, effectively”.
Safe Work Australia has provided information for workplaces as to how they can minimise the risk of exposure to and spread of COVID19. [Read more]
Businesses must give consideration to Work Health Safety (“WHS”) risk management which will likely include additional cleaning, the availability of hand sanitiser, allowing flexible start and finishing times to prevent employees being on public transport during peak hour, abolishing hot desks and redesigning office layouts to ensure social distancing,
As with any WHS matter, employees should be educated on the business’ COVID19 transmission reduction plan including that employees should not attend the office if they are unwell. Further, businesses should document their policies, practices and risk management plans in writing.
Employees may be entitled to workers compensation if they contract COVID19 whilst at work. They would likely need to establish that there was a clear link between the worker’s employment and contracting the virus (however this requirement has been removed in New South Wales for frontline healthcare workers).
Whilst an employer can encourage employees to download the Federal Government’s COVID-Safe app, an employer cannot require an employee download and use the app prior to returning to work or as a condition of their employment, even if the mobile device is owned by the employer.
Employers should be alive to the legal risks where employees request flexibility during this time, especially those who may be considered a vulnerable person who are at greater risk of serious infection from COVID19. How an employer considers and addresses an employee’s request for flexibility will determine the possible outcome of any claim for discrimination, adverse action against employment, unfair dismissal or any other breaches of the Fair Work Act, should a claim be forthcoming.
If you wish to discuss any matters arising from the effect COVID 19 is having on your business and your resulting legal obligations please do not hesitate to contact our Kate MacDonald.