If you own a business and are finding it difficult to meet your rental payments due to COVID-19, you may be able to request a rent reduction from your landlord.
From 24 April 2020, under the Retail and Other Commercial Leases (COVID-19) Regulation 2020 ('the Regulation'), if you're an eligible tenant, the landlord cannot terminate your lease if you’re unable to pay your rent, for up to 6 months, unless agreed otherwise by both you and your landlord.
Furthermore, your landlord must renegotiate your rent and other terms of your lease.
Each individual case is different, and it's up to you and your landlord to negotiate an appropriate rent reduction.
Leasing principles during COVID-19
The Regulation enacts the National Cabinet Mandatory Code of Conduct – PDF (the Code) which has been drawn up with the aim of:
- sharing the financial risk and cashflow impact during the COVID-19 period
- balancing the interests of tenants and landlords.
The Code includes 14 leasing principles, and these principles apply to negotiating amendments in good faith to existing leasing arrangements.
Principles 3, 4 and 5 refer to rent reduction and apply on a case by case basis:
- Principle 3: Landlords must offer reductions in rent (in the form of deferrals and waivers) proportionate to the tenant’s decline in turnover.
- Principle 4: Rent waivers (as opposed to deferrals) must constitute at least 50 per cent of the rent reduction.
- Principle 5: Any deferred rent must be paid back over the balance of the lease term or for a period of no less than 24 months, whichever is greater.
Landlords and tenants may opt out of any, or all, of the leasing principles as long as both parties agree to this.
The Regulation applies to commercial (retail, office and industrial) tenants that:
- had an annual turnover of less than $50 million in 2018/2019, and
- have experienced at least a 30% decline in turnover due to COVID-19 (or 15% in the case of not for profits), compared with a corresponding month or quarter in 2019.
What you'll need
You'll need to be able to show that your annual turnover in 2018/2019 was under $50 million by providing documentation such as a:
- tax return, or
- Business Activity Statement (BAS).
If you're not receiving JobKeeper payments, you'll need to demonstrate that you've had at least a 30% decline in turnover, with comparative bank statements or BAS documentation from a month or quarter in 2018/2019 and 2019/2020.
You'll also need the details of what you'll be requesting. This could include:
- the percentage of the rental reduction
- the amount of this percentage in dollars per month
- an outline of how much of the reduction you wish to be waived (removed), and how much you wish to be deferred (paid later).
You must provide your landlord with sufficient documentation to demonstrate actual decline in turnover, to calculate rent reduction. Landlords should act reasonably and not place onerous requests on tenants for documentation.
Requesting a rent reduction
- Review your lease to understand your key rights and obligations as a tenant.
If your lease has been registered, you can get a copy of it, for a fee, from NSW Land Registry Services.
- Read the 14 leasing principles in the Code of Conduct – PDF to familiarise yourself with your legal obligations and those of your landlord during a rental negotiation.
- Contact your landlord or their managing agent in writing and invite them to negotiate.
- Outline your circumstances with evidence of your eligibility criteria.
You can use the Template letter to landlord.doc as a guide.
- Negotiate your new rent arrangements and come to an agreement.
- Write down your agreement.
- Send the agreement to your landlord to sign and return to you, and keep a copy for yourself.
Mediation and general help
- For a comprehensive breakdown of the Code, visit NSW implementation of the National Code of Conduct for Commercial Leases.
- Visit Guidance on negotiating a commercial lease if you'd like help from a Business Concierge in negotiating your tenancy agreement.
- If you're unable to come to a negotiated agreement, call 13 77 88.
- For enquiries about your legal rights and obligations visit Legal Aid.
- Retail and Other Commercial Leases (COVID-19) Regulation 2020 – PDF
- National Cabinet Mandatory Code of Conduct – PDF
- Template letter to landlord.doc