Sneakerboy and Regulation extension

The NSW Supreme Court has provided much needed guidance for tenants and landlords in relation to the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (Regulation).

The Regulation commenced on 24 April 2020 and has recently been extended to 31 December 2020. The Regulation incorporates the leasing principles set out in the National Mandatory Code of Conduct (Code).

In Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996, the Court granted the tenant relief when their lease was terminated by the landlord for non-payment of rent and an alleged abandonment of the premises.

In a secondary decision, Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141, the Court adjudicated the renegotiation of the lease between the parties which included relevant commentary on the application of the Regulation.

Sneakerboy No 1

The landlord issued the tenant with a notice of termination for the tenant’s failure to pay rent and for abandonment of the premises. The lease was terminated on 25 March 2020.

The Court did not consider that the acts of the tenant in removing stock and minimising fitout amounted to an abandonment of the premises. Subsequently and despite a history of late payments of rent, the Court reinstated the lease, to the advantage of the tenant as it therefore became subject to the Regulation.

Sneakerboy No 2

This second decision related to the parties inability to come to an agreement on the terms of the relief and appropriate implementation of the Regulation.

The key points are as follows:

1. ‘Covid-19 Pandemic Period’

The Court concluded that the ‘Covid-19 Pandemic Period’ was intended to align with the period during which the JobKeeper program was operational. Therefore, the Court held that the Regulation has retrospective effect in relation to a tenant’s obligations to pay rent and outgoings from the commencement date of the JobKeeper program, that being, 1 April 2020. It is unclear whether a tenant will be granted retrospective relief for other obligations under a lease.

2. Prohibited action

The Regulation prohibits landlords from terminating the lease and drawing down on bank guarantees and security deposits during the prescribed period. The Court clarified that where the tenant breaches the lease during the prescribed period, the landlord is prohibited from taking such actions after the expiry of the prescribed period.

3. Reasonable Recovery Period

The Court held that the reasonable recovery period in this case should be for no less than 6 months after the expiry of the Regulation. The Court did however concede that each case is different and this period may be extended in certain circumstances. Further, where rent relief is agreed between the parties during the period of the Regulation, this relief can continue during the reasonable recovery period.

4. ‘Tenant’s Trade’

The Regulation require landlords to grant proportionate relief to their tenants based on the reduction in the tenant’s trade during the pandemic. The Court confirmed that generally the ‘tenant’s trade’ will not be limited to the tenant’s turnover from the leased premises. Rather, the term should be applied more broadly to the whole of that particular tenant’s turnover including any turnover derived from internet sales and from all locations at which the tenant conducts its business.

Conclusion

While the Sneakerboy cases have shed light on the application of the Regulation, the Court has admitted the limited utility in respect of failed negotiations between tenants and landlords. The cases present further concern and uncertainty for landlords wanting to take action for breaches of the lease before and after the prescribed period of the Regulation.

Update: Regulation extension

The NSW Government has announced that the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) will be extended until 31 December 2020. The Regulation was previously set to expire on 25 October 2020.

The announcement sets out that landlords can claim 25% land tax concession where they provide rent relief to tenants in financial distress from October to December. The concession is set to be applied to any unpaid 2020 land tax liability with refunds issued for payments already made this year.

Further, tenants will be required to re-establish their eligibility under the extension of the Regulation if they wish to request further rent relief. Landlords will now be required to respond to a tenant’s request for rent relief within a reasonable time.

Henry William Lawyers can assist with any related enquires. Feel free to contact our people:

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