2020 Land Tax COVID-19 Relief for Commercial and Residential Landlords

The NSW Government has introduced measures that provide relief to commercial and residential landowners, who provide a reduction in rent to a tenant experiencing financial distress as a result of COVID-19. Landowners will receive a reduction in their land tax payable for the 2020 land tax year if:

  • They’re leasing a parcel of land to a commercial tenant, who has an annual turnover of up to $50 million, or a residential tenant
  • The tenant is in financial distress as a result of COVID-19
    • For commercial tenants – reduction in turnover of 30% or more
    • For residential tenants – reduction in household income of 25% or more
  • The landlord reduced the rent of the affected for any period between 1 April 2020 and 30 September 2020, and for 2020, the landlord has land tax attributable to the parcel of the land leased.

If the landlord meets the above criteria, they will be eligible to receive a reduction. The reduction will be the lesser of, the amount of rent reduction provided to a tenant for the period between 1 April 2020 and 30 September 2020 OR 25% of the land tax attributable to the parcel of land leased to the tenant. Furthermore, if a landlord receives a reduction under this program, they will also be able to have their outstanding land tax payments deferred for up to three months.

Six-Month Moratorium on Residential Tenancy Evictions During COVID-19

As previously discussed, in March, Prime Minister Scott Morrison announced that the National Cabinet had agreed to a six month-moratorium for evictions for residential and commercial tenancies impacted by COVID-19. However, like a number of Coronavirus regulations, it was necessary for individual State governments to legislate such provisions in order for them to become effective. On 15 April 2020, the NSW Government amended the Residential Tenancies Act 2010, introducing a 60-day ban and a further six-months of restrictions on evicting tenants financially impacted by COVID-19. In order to meet the requirements for a 60 day stop on evictions and the longer six-month restrictions a household must demonstrate that they are impacted by COVID-19. A household will have been impacted if:

  1. One or more rent-paying members of a household have lost employment or income due to COVID-19 closure of business or stand downs; or
  2. One or more rent-paying members of a household have had to stop working or reduce work hours due to illness with COVID-19 or due to COVID-19 carer responsibilities; AND
  3. The above factors have resulted in a reduced household income that is reduced by 25% or more.

If you would like to find out more please click here.

JobKeeper Payments

The Coronavirus Economic Response Package (Payments and Benefits) Bill 2020 (Cth) was assented to on 8 April 2020 and will introduce a $1500 per fortnight JobKeeper payment for each employee in order to support business and encourage them to retain employees. The scheme operates from 30 March until 27 September 2020 and is divided into fortnightly periods. The payments are intended to subsidise wages for full-time, part-time and casual employees (will only cover casual employees if  they have been employed on a regular basis for over 12 months) that were employed on or  before 1 March 2020. The JobKeeper payments will also include employees who have subsequently been stood down. Businesses will be eligible to receive JobKeeper payments insofar as:

  • The business has a turnover of less than $1 billion and suffers a 30% drop in turnover for at least a month; or
  • The business ha a turnover of more than $1 billion and suffers a 50% drop in turnover for at least a month
  • Registered charities will be eligible for the program if they have suffered a 15% loss in their turnover.

It is important to note that the JobKeeper payment is subject to a wages condition. This means that the JobKeeper payment is a reimbursement of amounts already paid to an employee during a fortnight during the operation of the scheme. As a result, employers will only be entitled to receive the reimbursement if the employer has already paid at least $1500 per fortnight including salary, wages, commission, bonus’, allowances, PAYG withholding and superannuation contributions made by way of salary sacrifice. To learn more about the scheme please click here.

NSW Planning Minister Confirms Extended Construction Work Hours

Those involved in construction work in NSW, can take advantage of relaxed restrictions implemented under new COVID-19 measures. On March 31 2020, the Minister for Planning and Public Spaces released the Environmental Planning and Assessment (COVID-19 Development – Construction Work Days) Order 2020 in an attempt to assist social distancing measures by extending construction work over increased work days. The Orders override conditions of a development of consent under the Environmental Planning and Assessment Act 1979 which restricts building or construction work on Saturdays, Sundays or Public Holidays. However, the Orders do not apply to the approval for activity pursuant to Part 5 of the EP&A Act, which refers to activity carried out by public authorities.

Temporary Changes to Foreign Investment Rules in Australia

Changes to Australia’s foreign investment framework became effective on 29 March 2020. If you are an interested party to transactions involving foreign investors, theses changes have the potential to impact you and your business. The main changes to foreign transactions include:

  1. No monetary threshold – this means that, regardless of the value of the transaction, all proposed foreign investments subject to the Foreign Acquisitions Takeovers Act 1975 will require approval.
  2. Increased Review Periods – the timeframe for reviewing existing and new applications has been extended from 30 days to 6 months. However, FIRB advises that they will prioritise urgent investments that support Australian businesses and jobs.

If you were party to an agreement that was entered into prior to 29 March 2020 but the acquisition has not occurred then insofar as the value of the transaction was below the threshold at the time of the agreement, the changes will not affect the acquisition. Furthermore, if the agreement already required FIRB approval, then it may take longer than initially expected for the application to be approved.

The Federal Treasurer has confirmed that these changes are only temporary and will remain in place for duration of the COVID-19 pandemic.

Government to Support Commercial and Residential Tenants & Landlords

In addition to the measures discussed in our leasing update, the NSW Government has introduced new regulations that will give effect to the NSW Government’s COVID-19 emergency rental measures. The government support announced on 13 April 2020 includes $440 million in land tax relief, which will be split between the commercial and residential sectors. Eligible landlords will be able to apply for land tax concession of up to 25% of their 2020 land tax liability on relevant properties, insofar as they pass on their savings as rental reductions to their tenants. The commercial leasing policy will apply to business tenants with a turnover of less than $50 million and who have a 30% or more reduction in revenue as a result of COVID-19. For residential tenancies, households must demonstrate that they have suffered an income loss equal or greater than 25% as a result of COVID-19 and are struggling to make rental payments. It is estimated that eligible landlords will be able to apply for such land tax rebates from Service NSW from Monday 4 May 2020

Important Notice: Electronic Witnessing of Documents

The Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 under the Electronic Transactions Act 2000 (NSW) has now been enacted. This means that B+A can now witness our clients’ documents by audio visual link., without the need of having to see our clients in person. The type of documents that are covered by this amendment include:

  • a will
  • a power of attorney or enduring power of attorney
  • a deed or agreement
  • an enduring guardianship appointment
  • an affidavit, including an annexure or exhibit to the affidavit
  • a statutory declaration

If you require the witnessing of any documents, please do not hesitate to contact us and we will organise a conference scheduled via video call.

National Cabinet Mandatory Code of Conduct – Commercial Leasing Principles

On 7th April 2020, the Prime Minister Scott Morrison announced a National Cabinet Mandatory Code of Conduct for Landlords and Tenants, which is intended to apply to tenancies whether retail, commercial or industrial. The Code will apply in instances where a tenant is eligible under the JobKeeper Program. Whilst the JobKeeper Program incorporates specific exceptions, it generally applies to businesses which have a reduction of turnover in excess of, or equal to, 30% when compared to a similar period in a previous year (e.g. April 2019 compared to April 2020). In order for the Code to apply, Tenants will also have to have a turnover of $50 million or less.  The $50 million threshold will apply in relation to franchises at the franchisee level, and in respect of corporate groups at the group level, instead of at each individual outlet level.

Scott Morrison explained that the Mandatory Code is intended to protect small and medium businesses, whether that be Tenants or Landlords. The code imposes ‘leasing principles’ and contemplates that landlords and tenants will negotiate rental relief in an ‘open, honest and transparent manner acting in good faith’.

Under the code, Landlords and Tenants (it does not seek absolve Tenants from adhering to the code) will be bound by leasing principles including overarching principles. Some principles provide that Landlords and or Tenants will not be able to terminate the lease or draw on the tenant’s security, during the Covid-19 pandemic period and for a reasonable time thereafter – ‘the recovery period’. Landlords and Tenants will further be required to negotiate rent reductions proportionate to the trading reduction in the Tenant’s business over the course of the pandemic period, through a combination of waivers of rent, deferrals of rent and lease extensions. Waivers, being permanent abatements of rent, must account for at least 50% of the negotiated reduction in rental payments.

Any deferrals of negotiated reductions in rent must be covered over the balance of the lease period, for a minimum of 24 months. For example, if the lease only has another 6 months remaining, the tenant will have a minimum of 24 months after the pandemic period (and the subsequent reasonable recovery period) to pay the deferred rental payments by equal monthly installments. The payment of any deferred rent may take place in a period following the termination of the lease. Tenants may also seek an extension of the lease term so as to have the opportunity to trade in order to repay that amount.

In the event of a failure of the Landlord or Tenant to successfully negotiate a reduced rent, they will be subject to referral by either party to the relevant State/Territory dispute resolution process for binding mediation.

B+A has a structured economically efficient method to aid the negotiation process. We are able to provide advice and assist clients to initially resolve the dispute with a view of avoiding the binding mediation process. In the alternative, B+A can also participate in the binding mediation process if a resolution cannot be reached.

If we can assist, please contact us or ask as to how the process should be initiated and pursued.

NSW Government Introduces Changes to Retail and Residential Tenancy Laws

The COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) (‘the Act’) was assented to on 25 March 2020, introducing a variety of regulatory changes to be made to Retail and Residential Leases affected by COVID-19.

The new Act amends various statutes in relation to the pandemic, including s229 (Regulation Making Power) of the Residential Tenancies Act 2010 (NSW) and the s87 (Regulation Making Power) of the Retail Leases Act 1994 (NSW).  The amendments to these two acts have permitted the NSW Government to make regulations in relation to the following:

  • Prohibiting the repossession of a premises by a landlord/lessor
  • Prohibiting the termination of a residential tenancy agreement or a retail lease or tenancy
  • Regulating or preventing the exercise of enforcement of another right of a landlord/lessor under the relevant Act or another Agreement relating to the premises
  • Exempting a tenant, resident, or a class of tenants/residents from the operation of a provision of the relevant Act or another Agreement relating to the premises.
Further to these provisions, the relevant Minister may directly recommend to the Governor of NSW that regulations covering the above may be made under any Relevant Acts if the Parliament is not sitting and is not likely to sit within 2 weeks after the regulations are made and in the relevant Minister’s opinion, the regulations are reasonable to protect the health, safety and welfare of the tenants or residents under the relevant Act.

It is intended that these regulations will expire after 6 months, or if the Parliament decides, earlier. Given the developments of COVID-19 in Australia, both landlords and tenants, whether residential or retail, should be reviewing their lease documents and considering what current and future actions are required. It is imperative that you ensure that you are aware of your rights and duties during these uncertain times.

Coronavirus and Force Majeure clauses in contracts

Unfortunately, the Covid-19 pandemic has had a profound global economic impact, resulting in many companies and individuals being unable to comply with their contractual obligations. Therefore, the question to consider is whether you as a party, are able to avoid an obligation under a Contract arising from the World Health Organisation’s announcement that there is a worldwide pandemic and the subsequent announcements by the Australian Health Authorities. Many of us may also be enquiring as to whether there are entitlements to obtain refunds for deposits paid for travel and or sporting, cultural or personal events

The first issue for one to consider are the terms of your Contract and whether they incorporate either a specific “exit or termination” clause or a force majeure event clause. In the absence of an “exit or termination clause”, the relevant question is whether there is a definition of what constitutes a force majeure event so as to determine whether it is broad enough to incorporate an event such as a health pandemic.

What is a Force Majeure?

Force Majeure clauses are typically included in commercial contracts to remove liability for each party, arising from natural and unavoidable catastrophes that interrupt the expected course of events and restrict parties from fulfilling their contractual obligations. A force majeure clause may encompass “acts of God” such as natural disasters and certain disruptive and unforeseeable acts of man.

Does the Coronavirus trigger a force majeure clause?

Assuming your contract includes a force majeure clause, the question is whether it is limited, or whether it is broad enough to cover the coronavirus outbreak. If your contract is silent on defining a health pandemic, or epidemic as being a force majeure event, it is likely that a judge would consider the relevant risks that were in contemplation of both parties at the time of entering into the contract. If you intend to rely on a widely worded force majeure clause, the Court would likely have regard to whether or not the parties “reasonably contemplated” a health related outbreak, and whether the event was beyond reasonable control of the party that sought to invoke the clause.

My force majeure clause includes ‘acts of God’ – will this suffice?

Force majeure clauses tend to include ‘an act of God’. According to the case of Nugent v Smith (1876) 1 CPD 423, an act of God is regarded as an “event that is due to natural causes, without human intervention, and that could not have been prevented by any amount of reasonable foresight or care”.

In applying this case, there is a strong argument that Covid-19 could be regarded as an ‘act of God’ in contracts that were entered into prior to the manifestation of the virus. However, it is likely that the Court would still apply the “what was reasonably contemplated by the parties” test.

Seeking Relief for Force Majeure

Force majeure clauses usually state that a party will be removed from its obligations under a contract, to the extent that its performance of those obligations is prevented or hindered as a result of a force majeure event. Typically, if there are alternative methods or options that the affected party could use to honour its obligations, it will be necessary to pursue those avenues. If a force majeure clause uses the term “is prevented from” the affected party will need to demonstrate that it is physically or legally impossible to carry out those obligations in order for relief to be sought. Conversely, if the term “hindered” is used, the affected party will likely need only demonstrate that their operations and obligations have been effected and impeded by the force majeure event.

Ultimately of course Parliament (whether State or Federal) may elect to override your contractual rights, which would have an impact on your ability to recover monies and/or limit your liability to pay the balance of any contractual obligation. Furthermore, it may be that your contracting party will dispute your interpretation and litigate or pursue you for monies owing which may conclude in a Judgement. Whether or not you successfully avoid liability or are entitled to claim a refund will likely depend upon the evidence (in particular the terms of the contract) and a determination by the presiding Judge. Ultimately of course if ­­you end up with a favourable result, the ability for you to recoup money will also depend upon the financial impecuniosity or capacity of the party you are making the claim from.

Contact Us

In the event that you require some specific advices as to any agreement that you have, baron + associates would be happy to assist and provide you with a fixed quote for preliminary opinion.

We take this opportunity once again to wish our readers to maintain the focus as directed by the Health Authorities to ensure that the health of themselves, their family and friends are at all times maintained and protected.