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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.
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
Land Tax Relief Package to Assist Landlords and Tenants
State Government announces $50 million dollar land tax relief package to assist Landlords and Tenants.
Residential and SME commercial tenants – including gyms, restaurants, cafes, beauty salons and hairdressers - suffering significantly as a result of COVID-19 restrictions will benefit from immediate rent reductions as part of a sweeping land tax relief package for their landlords, announced today by the Marshall Liberal Government.
The State Government is providing approximately $50 million in emergency land tax relief for landlords which is expected to assist thousands of SME businesses and residential tenants across South Australia – bringing to $120m total land tax savings for local investors over the next year.
Under the emergency scheme, which is modelled on similar packages in New South Wales and Victoria, eligible landlords* will be offered a 25% reduction on their 2019-20 land tax liability on affected properties.
Treasurer Rob Lucas said landlords would be required to pass on the full benefit^ of the $50m in land tax relief to their tenants impacted by COVID-19 restrictions.
“This will be a powerful shot in the arm for local businesses and residential tenants who have been suffering a significant downturn in trade and income as a result of COVID-19 and the necessary restrictions imposed to help limit its spread,” said Treasurer Lucas.
State Government to provide $10,000 Emergency Cash Grants for Small Business
Small businesses and not-for-profit entities that employ South Australians who have been highly impacted by the COVID-19 pandemic may be eligible to receive a $10,000 grant to support the operation of their business.
The grant is being funded from the State Government’s $650 million Jobs Rescue Package.
To be eligible, businesses and not-for-profits including eligible sporting and community organisations will need to:
- Employ people in South Australia
- Have annual turnover of more than $75,000 (GST exclusive)
- Have an annual payroll of less than $1.5 million, and not be entitled to a payroll tax waiver under COVID-19 support measures introduced by the South Australian Government
- Have an ABN and were carrying on the operation of the business in South Australia on 1 March 2020
- Have been subject to closure or highly impacted by COVID-19 related restrictions^
- Apply by 1 June 2020
- Use the funds to support activities related to the operation of the business.
- The business has received any South Australian Government grants provided to address COVID-19 related business impacts, the value of these payment(s) will be deducted from the $10,000 grant.
- The business is part of a group of companies that is registered for payroll tax and will receive the payroll tax waiver, the business is ineligible for this grant.
Applications for the grant will open shortly and be available until 1 June 2020.
More information and to register for the program visit https://www.treasury.sa.gov.au/Growing-South-Australia/COVID-19
First Major Tranche of $10k emergency cash grants flow to small businesses
Treasurer's Media Release 4 May 2020
^ Businesses eligible for the Commonwealth JobKeeper payment will be deemed to be highly impacted by COVID-19 restrictions.
COVID-19 IMPACTS ON SMALL BUSINESS
Every business is being affected by Covid-19/Coronavirus with impacts on customers, staff and supply chains.
The Small Business Commissioner is working with the Government which is considering and implementing measures to support the South Australian community including a new $10,000 Small Business Emergency Grant.
Further details on the $10,000 Emergency Grant can be found at: https://www.treasury.sa.gov.au/Growing-South-Australia/COVID-19
Some major changes are being put in place to support small businesses in rental premises and 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 firstname.lastname@example.org
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 on line to maintain our support to small businesses during the Covid 19 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 - TUESDAY 26 MAY 2020
Business restrictions to ease from Monday
The State Government has brought forward the date marking Stage Two of business restrictions lifting in South Australia, with the following allowed to operate from next Monday, 1 June:
- Gyms and indoor fitness
- Cinemas and theatres
- Galleries and museums
- Beauty salons
- Driving lessons
- Funerals, with up to 50 people in attendance
Premier Steven Marshall also announced an increase in the number of customers allowed from next week, with businesses able to host up to 20 patrons in each distinct area of their venue, and up to 80 people allowed in a venue overall. A limit of one person per 4sqm still applies.
Pubs and restaurants will be allowed to serve alcohol to seated diners, with or without a meal.
Detailed information will become available on the Roadmap to Recovery website.
Hundreds of SA businesses register for 'COVID clean' training
Over 400 South Australian businesses have already registered their interest in completing infection control training for staff as they prepare to reopen safely.
On the back of last week’s announcement that over 5,000 training places would be made available, the State Government has engaged three training providers to rollout the ‘COVID clean’ toolkit.
Time Education and Training, Open Colleges and TAFE SA are set to deliver the training from next week.
Participants will learn a range of skills, including hand hygiene practices, effective surface cleaning, use of personal protective equipment (PPE), disposal of contaminated waste, appropriate protocols and responses in the event of an incident and knowledge regarding the basis of infection and transmission.
Click here to register your interest.
Public housing upgrade blitz
Renovations for more than 1400 public housing properties across South Australia will be fast-tracked over the next few months as part of the State Government's stimulus package.
To support jobs and local business in the wake of COVID-19, $6 million of works are set to be completed next month, with the remaining $4 million to be spent early in the new financial year. Read the media release.
Applications for emergency cash grants closing soon
A reminder that the last day small businesses can apply for the State Government's $10,000 emergency cash grant is Monday, 1 June.
As an employer, you may be eligible for this support if your business has an annual turnover of more than $75,000 and has been highly impacted by COVID-19 related restrictions. Learn more.
Matching job seekers with seasonal work
Since the launch of the State Government's Seasonal Jobs SA campaign last week, the new website matching job seekers with vital agriculture work is receiving more than 1,000 visits each day.
Agricultural employers looking for staff are invited to publish opportunities to this platform.
Nature-based tourism boost
The State Government has opened its $5 million Nature-Based Tourism Co-Investment Fund, with grants between $20,000 and $1 million now available to help local businesses deliver sustainable and quality tourism experiences.
Applicants are expected to contribute at least half of the total cost of their project, with grants available until June 2022.
Other useful resources
City of Adelaide has developed a series of videos featuring local business champions addressing common questions and concerns in the wake of COVID-19. Their first video focuses on the JobKeeper Scheme, click here to view.