15 September 2020

Extension of Commercial Tenancies Declaration

This article was written by Chris Wheeler and Liam Carroll.

Key points

  • The ACT Government has announced an extension of the COVID-19 commercial tenants rent relief scheme, with the new declaration to commence on 28 September 2020 and providing relief until 31 January 2021.
  • The declaration extends the application of the National Code of Conduct requiring landlords to continue to engage in good faith negotiations to provide relief for impacted tenants and prior to taking enforcement action like issuing a termination notice.
  • To be eligible for relief tenants will need to qualify under the new JobKeeper program.
  • The declaration will not apply to leases entered since 7 April 2020.

 On 10 September 2020 the ACT Government announced the extension of the Leases (Commercial and Retail) COVID-19 Declaration 2020 (No. 2) (“Second Declaration”) to assist commercial tenants affected by the pandemic and experiencing difficulties paying rent.  The updated declaration takes effect from 28 September 2020 and expires on 31 January 2021 at the latest.

We previously analysed the initial implementation of the Leases (Commercial and Retail) COVID-19 Emergency Response Declaration 2020 (“First Declaration”) in our alert on 12 May 2020.  We now consider the implications of the latest iteration of the declaration.

What protections are provided under the Second Declaration?

Consistent with the First Declaration, landlords continue to be required to engage in good faith negotiations regarding rent relief with qualifying tenants impacted by the COVID-19 pandemic. As with the First Declaration, under the Second Declaration, a landlord is unable to issue a termination notice to an eligible tenant or otherwise seek to enforce the lease (including the obligation to pay rent) without first having engaged in good faith negotiations in accordance with the National Code of Conduct.

The moratorium on tenant evictions applies only in respect of certain circumstances, such as the inability to pay rent due to COVID-19 and does not prevent all tenant evictions or other enforcement actions for breach.  Accordingly, a landlord may still issue a termination notice for reasons unrelated to the ability to pay rent and the COVID-19 pandemic (eg a breach of the purpose clause or assigning the lease without landlord consent).

The Second Declaration also preserves the protections available to impacted tenants under the First Declaration for conduct arising during the prior protected period 7 April 2020 up to 27 September 2020.

Who does the Second Declaration apply to?

 The protections under the Second Declaration will apply to tenants that qualify for the Commonwealth JobKeeper program as at 28 September 2020 and have an annual turnover of less than $50 million.

 As the eligibility requirements for the JobKeeper program are being updated on 28 September 2020, certain tenants eligible under the First Declaration will not be covered by the Second Declaration.  However, these tenants will remain protected for instances covered by the First Declaration that occur between 1 April 2020 and 27 September 2020.

 The Second Declaration does not apply to tenants in respect of leases entered since 7 April 2020.  Leases entered into after this date are regarded as having been entered into with sufficient understanding and agreement of the current economic climate.  

What assistance is provided to landlords?

 The Second Declaration interacts with the ACT’s commercial rates assistance package, which is also to continue (though only until 31 December and not 31 January 2021, oddly).

 Under this assistance package, landlords may be eligible for rates assistance if:

  • the landlord’s properties have an average unimproved land value of $2 million or below;
  • their tenants have been financially impacted by the COVID-19 pandemic; and
  • the landlord can demonstrate that they have negotiated in good faith to reduce the tenants rent.

For property owners with an average unimproved land value exceeding $2 million, there continues to be discretionary rates relief available.  We are aware ACT Treasury is processing these rates relief applications, however, there are delays in receiving responses and the positive responses to date do not appear to be overly material.

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