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Essential Information for Lessees and Lessors dealing with COVID-19
Many lessees and lessors are facing significant financial difficulty as a result of enforced closure of their businesses or a dramatic downturn in customers due to social distancing and work from home requirements.
On Tuesday 12th May 2020, the SA Government announced that changes would be made to the Covid-19 Emergency Response Act 2020 (COVID Act) in relation to matters involving commercial leases.
The amending legislation was introduced into State Parliament on Tuesday 12th May 2020 and passed on 14 May 2020. A copy of the amended COVID-19 Emergency Response Act 2020 can be found here.
The Act and Regulations make various temporary modifications to the law of the State in relation to commercial leases in response to the COVID-19 pandemic including stopping evictions.
Under the amended COVID Act, the Government has increased powers to make regulations, if necessary, for the purposes of mitigating the adverse impacts on a party to, or any other person with an interest in, a commercial lease resulting from the COVID-19 pandemic.
New Regulations have commenced operation on 15 May 2020 to guide the negotiation, mediation and ultimately a Magistrates Court determination process.
The COVID-19 Emergency Response (Commercial Leases No 2) Regulations 2020 (Regulations) can be found here.
Briefly, the Regulations impose an obligation on parties to commercial leases to negotiate in good faith.
The specific wording of the Regulations Part 2 (6) provides:
The parties to a commercial lease and any guarantor or other person with an interest in the lease must make a genuine attempt to negotiate in good faith the rent payable under, and other terms of, the commercial lease during the prescribed period, having regard to -
(a) the economic impacts of the COVID-19 pandemic on the parties to the lease; and
(b) the provisions of the Act and these regulations; and
(c) the provisions of the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 published on 7 April 2020.
A copy of the National Cabinet Mandatory Code of Conduct—SME Commercial Leasing Principles During COVID-19 published on 7 April 2020 can be found here.
The Regulations include prohibitions and restrictions relating to commercial leases and in particular that:
If a lessee is an affected lessee, a lessor cannot take any prescribed action against the lessee on grounds of a breach of a lease during the prescribed period consisting of:
- a failure to pay rent; or ·
- a failure to pay outgoings; or ·
- the business operating under the lease not being open for business during the hours specified in the lease.
A lessee is an affected lessee if –
(a) the lessee is suffering financial hardship as a result of the COVID-19 pandemic; and
(b) the following turnover in a relevant year was less than $50 million:
(i) if the lessee is a franchisee—the turnover of the business conducted at the premises the subject of the commercial lease;
(ii) if the lessee is a corporation that is a member of a group—the turnover of the group;
(iii) in any other case—the turnover of the business conducted by the lessee at the premises the subject of the commercial lease.
Prescribed action means taking action under the provisions of a commercial lease or seeking orders or issuing proceedings in a court for any of the following:
- eviction of the lessee from premises that is subject to a commercial lease;
- exercising right of re-entry to premises that is subject to a commercial lease;
- recovery of land;
- distraint of goods;
- requiring a payment of an interest on unpaid rent otherwise payable by a lessee;
- recovery of the whole or part of a security bond under the commercial lease;
- performance of obligations by the lessee or any other person pursuant to a guarantee under the commercial lease;
- termination of the commercial lease;
- any other remedy available to a lessor against a lessee at common law or under South Australian law.
Prescribed period means the period beginning on 30th March 2020 and ending on 30th September 2020.
Unless otherwise agreed between the lessor and lessee, rent must not be increased during the prescribed period if the lessee is an affected lessee. Rent determined by turnover is excluded from this provision in the Regulations.
A lessor must not require an affected lessee to pay land tax or reimburse land tax if the lessee is suffering financial hardship as a result of the COVID-19 pandemic.
It Is important to note that leases entered into after 30 March 2020 are outside the Regulations, except for renewals or options to renew or extend an existing lease on the same or substantially similar terms.
The Regulations also provide for the situation that if the parties have agreed a variation or modification to the operation of the lease between 30 March 2020 and 15 May 2020, the Magistrates Court cannot make an order to vary the agreement during that period of time, but they can change the agreement going forward.
Negotiation and agreement is encouraged
As a first step, lessees and lessors are encouraged to commence discussions on any matters relating to leases including deferral and/or waiting of rent, rent free periods or any other modifications to leases which will help both parties through this difficult time.
The Small Business Commissioner has produced a guidance note for parties to a lease in relation to the provision of financial information to assist in negotiations. Download the Covid-19 Guidance Note - Commercial Information "requests" by Commercial Lessors Factsheet here.
If agreement is reached, that agreement and any changes to the lease should be documented and executed by all parties.
If signing is not possible, parties should consider exchanging agreements electronically.
To assist lessees and lessors who are negotiating an agreement on rental relief, the Office of the Small Business Commissioner has prepared a draft Deed of Arrangement to record any agreement reached. The draft can be found here.
Parties are strongly advised to obtain their own independent expert advice – be that financial and/or legal - BEFORE committing to any changes in their lease arrangements.
What if you can’t agree - the Office of the Small Business Commissioner (OSBC) may be able to help
If parties to a commercial lease are unable to resolve their dispute, a lessor or an affected lessee may lodge a request for mediation on the Office of the Small Business Commissioner (OSBC) website here.
An OSBC officer will contact the parties and, if appropriate, arrange for mediation. The Small Business Commissioner will allocate a mediator from his panel for this purpose.
There will be no cost to the parties for mediation. It is expected that parties will negotiate in good faith.
The mediation may be conducted in person, by video conference or teleconference or a mix thereof and parties should ensure they have access to a computer/mobile device for the mediation, if necessary.
Parties will be required to execute a mediation agreement prior to the mediation commencing and ultimately, if the mediation is successful, a legally binding settlement agreement will be made by the parties.
If the mediation process:
- fails to achieve agreement or is unlikely to resolve the dispute; or
- mediation would not be reasonable in the circumstances; or
- a party refuses to participate or did not participate in good faith.
The Small Business Commissioner will issue a Mediation Certificate to both parties which is required BEFORE any action to resolve the matter can be commenced in the Magistrates Court.
For information on residential tenancies, contact Consumer and Business Services
State Government needs to show compassion on Small Business Grants
The Small Business Commissioner, John Chapman, has called on the State Government to urgently review its policies to get South Australian businesses up and running.
“As we are emerging from the shut downs caused by the Covid-19 pandemic, I am finding there are many businesses which are struggling to get back on their feet financially,’ Mr Chapman said.
The Commissioner said an important first step was for a review of the policies around the State Government’s $10,000 Emergency Cash Grants for Small Businesses.
Applications for the grant which was part of the Government’s response to the Covid-19 pandemic closed on 1st June 2020.
However, according to the Small Business Commissioner there have been a number of applications which have been rejected because they were not completed by the closing date.
“The State Government needs to show some compassion and flexibility in this area given I have a number of cases where accountants and business owners were overwhelmed with issues and were unable to complete the application and provide the supporting paperwork within time,” Mr Chapman said.
“It is grossly unfair that those businesses which would have qualified for these desperately needed funds are now having the door slammed in their face by the Treasurer.”
The Small Business Commissioner has made written representations on behalf of 15 businesses to the Treasurer.
Mr Chapman said the State Government also needed to reconsider its decision not to provide financial support to sole traders and those businesses who do not have employees.
“These businesses and their owners have and are facing enormous difficulties, yet we have a Government which does not seem to understand the pressures they are under.”
Mr Chapman said he was concerned that some businesses, particularly those in the tourism sector, were denied the grants because they did not employ staff.
“We have genuine businesses, many small family operations, which meet all the criteria except for that of being an employer,” Mr Chapman said.
“These businesses are often the next generation of small business employers and many need to be assisted through this dreadful time.”
“The Government cannot ignore these small business people who put their hearts and souls into their enterprise and Government at the time of great need.”
Changes to the Retail and Commercial Leases Act 1995
Landlords and tenants in the retail and commercial leasing industry need to be aware of important changes to the Retail and Commercial Leases Act 1995 (the Act) and accompanying Regulations.
These changes came into force on 1 July 2020. A summary of these changes can be found here.
A copy of the amending Bill as passed by both houses can be found here.
From 1 July 2020, at the time when a copy of a proposed lease is provided to a prospective tenant, the landlord or person acting on behalf of the landlord must also provide the prospective lessee with a copy of the Small Business Commissioner’s information brochure, which is referred to as the Retail & Commercial Leasing Guide. Failure to comply with this requirement may result in a penalty of up to $8,000.
A copy of the information brochure which is effective from 1 July 2020, can be found here.
For further information please contact the Office of the Small Business Commissioner via our Contact Form.
COVID-19 IMPACTS ON SMALL BUSINESS
Every business is being affected by Covid-19/Coronavirus with impacts on customers, staff and supply chains.
Major changes are being put in place to support small businesses in rental premises, please refer to updates on our website www.sasbc.sa.gov.au for information.
Businesses facing particular issues or disputes in terms of their banks, their rental premises, suppliers or other business parties, are encouraged to contact our office on email@example.com
One of our staff will contact you as soon as possible to discuss your issue.
Our office specialises in alternative dispute resolution and we will endeavour to work with the parties to find a resolution.
If you have a dispute please lodge online here.
We are working online to maintain our support to small businesses during the Covid19 pandemic.
Please see our Youtube videos for our recent webinar events which provide information on how to manage your business through this difficult period.
The Australian Taxation Office (ATO) is ready to assist small businesses with taxation concerns, visit their website Dealing with disasters.
In relation to staffing and industrial relations matters please refer to your business or industry association which include Business SA, Australian Industry Group, Master Builders Association, Housing Industry Association, Australian Hotels Association, Restaurant and Caterers Association, Motor Trade Association Primary Producers SA who should be able to assist.
Alternatively the Fair Work Ombudsman has a help line to deal with pay and industrial relations matters on 13 13 94 or their website www.fairwork.gov.au.
For further information on financial assistance, eligibility and timing for the Commonwealth Government’s support for businesses visit the business.sa.gov.au website.
For workplace wellbeing, please visit our information page here.
The South Australian Government passed the COVID-19 Emergency Response Act 2020 (the COVID Act) on 8 April 2020 and accompanying Regulations have been effected on 16 April 2020.
The Act and Regulations makes various temporary modifications of the law of the State in response to the COVID-19 pandemic including stopping evictions.
Latest updates provided by Department for Innovation and Skills
THURSDAY 30 JULY 2020
Interstate travel update
With the current outbreak of COVID-19 in Victoria, the South Australian Government is tightening the rules around travel from the state.
From Wednesday 29 July, the only people allowed to travel from Victoria to South Australia are essential travellers, with South Australian residents no longer permitted to return.
Visit the SA Police website to view categories of essential traveller, how to prove your status, and to complete a Cross Border Form.
Visitors from New South Wales and Australian Capital Territory must quarantine for 14 days upon arrival in South Australia, and undertake two COVID-19 tests, within 24 hours of arrival and again 12 days later.
Visitors from all other states and territories are welcome in South Australia without a quarantine requirement. However, all travellers must complete a Cross Border Form before arrival.
For all current travel advice and information, visit SA.GOV.AU.
Customer-facing businesses are still able to enrol in the government subsidised COVID-Clean training course, equipping workers with the skills and knowledge to operate safely in the COVID-19 environment.
Check out this InDaily article on the benefits, including comments from those who have already completed the accredited training
Supporting vocational education and training
In April, the South Australian Government launched the Vocational Education and Training (VET) Market Continuity Package providing immediate financial relief to the state's training sector.
This $16 million investment ensured our VET system was effectively positioned to support industry skill demand in the COVID-19 economic recovery period.
The first phase of this support has now concluded. From July, contracted training providers continuing to experience detrimental impacts as a result of COVID-19 can apply for further assistance, up to 30 September 2020.
The Department for Innovation and Skills will work with applicants to assess available supports and opportunities on a strictly confidential basis. For further information and to apply, visit the Training Provider website.
Free financial counselling for drought-affected businesses
Small businesses in drought-affected regions are able to access free financial counselling as part of the State Government's Drought Support Package.
Delivered by Rural Business Support, participants can arrange a meeting with a financial counsellor (online or in person) who can help them understand their financial position, identify options and implement plans to improve viability.
To be eligible to access the service, regional and rural small businesses must employ 19 or fewer people, be experiencing financial hardship or be at imminent risk of financial hardship and be located in a drought-affected area.
For more information on the Small Business Financial Counselling Program visit the Rural Business Support website.
The revised JobKeeper scheme will begin from the end of September, with participating businesses still experiencing a 30 per cent or more drop in turnover eligible for the following wage subsidies:
From 28 September 2020: $1200 a fortnight for full-time workers and $750 for part-time workers (<20 hours per fortnight).
From 4 January to 28 March 2021: $1000 a fortnight for full-time workers and $650 for part-time workers (<20 hours per fortnight).
For the latest information on the JobKeeper Payments and eligibility criteria, visit the Australian Treasury website
Apprentice & trainee wage subsidy extended
The Australian Government has extended the period for which apprentices or trainees will attract a 50 per cent wage subsidy.
Part of the recent JobTrainer announcement supporting skill creation, eligible employers will be able to claim the subsidy for wages paid until 31 March 2021.
A reminder that SA's Department for Innovation and Skills is available to help your business connect with training organisations, access course subsidies and financial support, and manage training contracts throughout the COVID-19 period.
Amazon Australia opens business grant
Applications are now open for the Amazon Launchpad Innovation Grants, with packages worth $80,000 to be awarded to five Australian startups, entrepreneurs and SMEs.
Recipients will recieve a $20K cash grant, access to mentoring, networking and investment opportunities, tech support and advertisement credits. Apply before 24 August.
Small business grants to improve energy efficiency
Commonwealth Government grants of up to $20,000 are now available for small businesses to undertake projects designed to improve energy efficiency.
Eligible activities include replacing existing machinery with higher-efficiency equipment, or carrying out energy audits.
Applications close 26 August. Visit business.gov.au to learn more.
Supplying to Government
The Industry Advocate has launched the Supplying to Government Magazine, which will be a quarterly guide to upcoming contracts with the Government of South Australia.
The publication also provides advice on navigating the government procurement process and where to go for help. Click here to view the first edition.
Other helpful resources
McKinsey & Company have launched a new podcast series to empower corporate entrepreneurs with the playbook to design, build, and scale new businesses. Listen to The Venture.
City of Adelaide's Adelaide Living Podcast is also now available for streaming, featuring local business leaders and social commentators.