Commercial leases and COVID-19 FAQs

The Regulation, which was introduced on 14 July 2021, lapsed on 30 June 2022. However, commercial tenants will continue to be protected by certain provisions in the Regulation.

While the Regulation lapsed on 30 June 2022, amendments were recently made to the Retail Leases Act 1994 to preserve the rights of eligible retail and commercial tenants accrued during the prescribed period of the Regulation (13 July 2021 to 30 June 2022).

This means a landlord cannot take certain actions for certain breaches of the lease between 13 July 2021 and 30 June 2022 by an eligible tenant unless the landlord has complied with the process outlined in the Regulation.

For example, even after 30 June 2022, a property owner will not be able to evict an eligible tenant because they were unable to pay their rent due to COVID-19 between 13 July 2021 and 30 June 2022 unless they have first renegotiated rent and attempted mediation.

The amendment will not impact property owners’ rights in relation to circumstances arising after the prescribed period (i.e. after 30 June 2022).

These FAQs provide more detail on the Regulation and how it applied to breaches of a lease during the prescribed period (13 July 2021 to 30 June 2022).

The Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the Regulation) was enacted on 14 July 2021 to provide protections for commercial tenants impacted by COVID-19. 

Under the Regulation, property owners could not take certain actions for certain breaches of the lease unless they had renegotiated rent and attempted mediation. The Regulation stipulates that in renegotiating rent, property owners and tenants must have regard to the leasing principles in National Cabinet Code of Conduct, and the economic impacts of COVID-19.

Recent amendments to the Retail Leases Act 1994 have preserved rights accrued during the prescribed period of the Regulation (13 July 2021 to 30 June 2022). This means that if a landlord wishes to take certain actions for certain breaches of these lease from 13 July 2021 to 30 June 2022, they must follow the requirements outlined in the Regulation at the time of the breach. These requirements will involve renegotiating rent and/or attempting mediation.

The NSW Government’s commercial leasing protections were designed to share the economic impacts of COVID-19 between landlords and tenants, help limit the long-term economic damage of COVID-19 and maximise the number of businesses that can resume normal operation.

It also aimed to assist lessees and lessors to resolve disputes through negotiation and mediation.

Regardless of whether the Regulation applied, tenants and property owners can still negotiate rent relief and apply for mediation if negotiations stall.

For certain periods, commercial property owners and eligible tenants were required to negotiate rent relief agreements by taking into consideration the principles in National Cabinet’s Code of Conduct on commercial tenancies (unless otherwise agreed by both parties). The requirement to renegotiate rent ended for tenants with turnover of $5 million or more on 30 November 2021, and for tenants with turnover less than $5 million on 13 March 2022.

Leasing Principles in National Cabinet’s Code of Conduct

1. Landlords must not terminate leases for non-payment of rent
2. Tenants must remain committed to the terms of their lease, subject to any amendments negotiated, and material failure to do so will forfeit additional COVID-19 protections provided to tenants
3. Landlords must offer tenants proportionate reductions in rent (in the form of deferrals and waivers) of up to 100 per cent of the amount ordinarily payable, in proportion to the decline in the tenant’s trade.
4. Rent waivers, as opposed to deferrals, must constitute at least 50 per cent of the rent reduction provided by landlords (in negotiating this, regard must be had to the landlord’s financial ability to provide such a waiver)
5. Any rent deferral must be amortised over the balance of the lease term and for a period no less than 24 months, whichever is greater, unless otherwise agreed by the parties
6. Landlords must pass any reduction in statutory charges (e.g. land tax, council rates) to the tenant
7. Landlords should seek to share any benefit received due to deferral of loan payments by a bank or otherwise with the tenant in a proportionate manner
8. Landlords should, where appropriate, seek to waive recovery of any other expense (or outgoing payable) by a tenant under the lease terms during the period the tenant is unable to trade
9. Repayment of other (non-rent) expenses should not commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government), or the existing lease expiring
10. Landlords must not charge fees or interest on rent or fees that are waived or deferred
11. Landlords must not draw on a tenant’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal security) unless agreed by the tenant and landlord
12. Tenants should be allowed to extend their lease for an equivalent period of any rent waiver/deferral period.
13. Landlords must freeze rent increases (except for retail leases based on turnover)
14. Landlords may not apply any prohibition or levy any penalties on tenants that reduce operating hours or cease to trade during the COVID-19 pandemic.

Under the Regulation, property owners must renegotiate rent with eligible tenants in good faith having regard to the leasing principles in the Code of Conduct and the economic impact of the COVID-19 pandemic.

Under the leasing principles, property owners are required to reduce rent in proportion to the tenant’s decline in turnover. This means if a tenant experienced a 40 per cent decline in turnover due to COVID-19, then the property owner must provide a 40 per cent reduction in rent. 

As a default position, at least 50 per cent of any rent relief must be in the form of a rent waiver with the remainder a rent deferral. 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.

Parties can negotiate rent relief for whatever period they determine appropriate.

As a starting point, property owners should provide rent relief for as long as the tenant was impacted by restrictions. This should be determined by referring to the period for which the tenant received a NSW government grant (or would have received a grant if these programs continued).

The period during which rent renegotiation was required ended for tenants with turnover of $5 million or more on 30 November 2021, and for tenants with turnover less than $5 million on 13 March 2022.

Tenants with an annual turnover of less than $5 million: 

Although landlords are not required to negotiate rent for periods after 13 March 2022, tenants who were impacted lessees are still able to request a rent negotiation for periods prior to this that were covered by the Regulation if they are yet to do so. You may need to provide your lessor with evidence that you were an impacted lessee at the time. If you need assistance with renegotiating rent, the NSW Small Business Commission offers low-cost mediation to help reach agreements and resolve disputes. 

Tenants with an annual turnover of more than $5 million: 

The requirement for renegotiation of rent ended on 30 November, with landlords prevented from taking certain actions, like eviction, terminating a lease or recovering a security bond, until 13 March, 2022. Despite this, tenants who wish to negotiate with their landlords over rent and other conditions of their lease may contact the Commission for low-cost mediation to help reach agreements and resolve disputes. 

Rent could not be increased between 13 July 2021 and 13 March 2022 for impacted lessees. Now, the lease conditions will determine when rent increases are to occur - landlords are not prevented from increasing rent, though it cannot be backdated before 13 March.  

Your lease document will set out the terms of the lease, including when rent increases are to occur and by how much. Parties may negotiate these terms, though rent increases cannot be backdated to during the moratorium on rent increases. 

If you are unsure how to interpret your lease, you may wish to seek legal advice to be sure of your rights and responsibilities. 

To determine decline in turnover, parties should use the comparison periods the tenant relied on when applying for the COVID-19 grants as a starting point.

For example, if a tenant was eligible for JobSaver because they experienced a 40 per cent decline in turnover from 12 to 26 July compared to the corresponding period in 2019, the property owner may agree to provide rent relief of 40 per cent, with at least half being a waiver.

However, parties are also free to determine an alternative comparison period that works for them. If you are unsure what comparison period to use, you may want to get legal advice to determine your best option.

Regardless of the comparison used, tenants should provide evidence of their decline in turnover to their property owner to help them calculate the appropriate rent reduction. Evidence could include a Business Activity Statement (BAS) or an Accountant’s Letter.

It is up to the parties to consider how deferred rent may be repaid, taking into consideration the parties’ financial positions. Repayment may commence as soon as the parties agree, or the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring.

When applying for a COVID-19 grant, businesses would generally not include JobKeeper and JobSaver payments and other NSW Government COVID-19 grants in their calculation of aggregated annual turnover and decline in turnover.

However, for the purposes of calculating the level of rent reduction, JobSaver, Micro-business Grant and Business Grant payments should be included as part of a tenant’s turnover. This is because these payments can be used to help pay rent (unlike JobKeeper in 2020 which could only be used to pay employees).

Yes, the tenant’s turnover from online sales should be considered when calculating the level of decline in turnover.

Within 14 days of receiving the request or another period if agreed to by both parties.

For tenants with an annual turnover greater than $5 million, the prescribed period in the Regulation applied from 13 July 2021 to 13 March 2022.

For tenants with an annual turnover of less than $5 million, the prescribed period in the Regulation applied from 13 July 2021 to 30 June 2022.

Property owners cannot take prescribed actions against an eligible tenant for certain breaches of the lease in this period unless they comply with their obligations to mediate and, in some circumstances, negotiate rent. This continues to apply even though the Regulation has ended.

If you are a sub-lessee and meet the eligibility criteria of the Regulation, you are an impacted lessee under the Regulation and can ask your lessor (the sub-lessor, not the head-lessor) to renegotiate rent.

There is nothing in the Regulation preventing lessors from taking action at any time for breaches that occurred prior to 13 July 2021.

The Regulation is published on the Legislation NSW website. 

Protections were in place for commercial tenants prior to 13 July 2021. See commonly asked questions about the Retail and Other Commercial Leases (COVID-19) Regulation 2020.

Under the Regulation, any negotiation should take into consideration the leasing principles set out in the National Cabinet’s Code of Conduct for Commercial Leasing (particularly principle 12). This may mean that parties agree to extend the length of the lease agreement to allow the lessee more time to make repayments, however parties are free to reach an alternate agreement that meets their needs. 

The Regulation prevented rent increases during the prescribed period until 13 March 2022. Beyond this date, landlords are not prevented from increasing rent, even if their tenant is still eligible for mediation protections.

For help with disputes about rent increases, the Commission offers a mediation service. 

Eligibility until 30 November 2021

A commercial or retail tenant is eligible for the rent relief protections if their business has annual turnover of less than $50 million and was eligible for any of the following supports: the 2021 COVID-19 Micro-business Grant, 2021 COVID-19 Business Grant or the 2021 JobSaver Payment. Additionally, businesses that would have been eligible for one of these supports if they had not received the Commonwealth COVID-19 Disaster Payment are also eligible.

Generally, businesses that experienced a decline in turnover of at least 30 per cent due to the public health orders will be eligible. Not-for-profits must have at least a 15 per cent decline, corresponding with their eligibility under the JobSaver payment.

Charities will also be eligible for the protections in the package provided they meet the same eligibility criteria.

Eligibility after 30 November 2021

From 1 December 2021, if a tenant with an annual turnover less than $5 million continued to meet the eligibility criteria for JobSaver or the Microbusiness Grant, despite these programs ending on 30 November, they continued to be eligible for rent relief negotiations until 13 March 2022.

Landlords of tenants that received protections for any period under the Regulation are also prohibited from taking actions for certain breaches of the lease between 13 July 2021 and 13 March 2022 without first attending mediation. This includes tenants with annual turnover up to $50 million.

Eligibility from 14 March 2022 to 30 June 2022

No tenant is eligible for mandated rent relief between 14 March 2022 and 30 June 2022. However, landlords may choose to continue providing rent relief.

Mediation protections, which prevent landlords taking certain actions without first attempting mediation, apply for the period up to 30 June 2022 for tenants with an annual turnover of less than $5 million.

The annual turnover thresholds will be applied in respect of franchises at the franchisee level, and in respect of retail corporate groups at the group level (rather than at the individual retail outlet level).

Eligibility until 13 March 2022

To be eligible, tenants must provide their property owner with:

• Tax returns and/or Business Activity Statements to demonstrate an annual turnover of less than $50 million in 2020-21
• Evidence they qualified for at least one of the following, or would qualify but for a COVID-19 Disaster Payment made to the lessee by the Commonwealth:
  • 2021 Micro-business Grant
  • 2021 Business Grant, or
  • 2021 Job Saver Payment.

This will typically be a remittance or bank statement showing the tenant has received the relevant grant.

Tenants that have not submitted an application or are waiting to be approved for one of the grants, may still be eligible for protections. These tenants must provide evidence they experienced a decline in turnover of 30 per cent or more due to the public health order over a minimum 2-week period commencing 26 June 2021 compared to:

• the same period in 2019, or
• the same period in 2020, or
• the 2 weeks immediately prior to any restrictions, 12 June to 25 June 2021.

This evidence will generally be a letter from a qualified accountant, registered tax agent or registered BAS Agent. There are templates for these letters available on the Service NSW website.

Tenants must also provide property owners with sufficient documentation to demonstrate actual decline in turnover, to calculate rent reduction. Property owners should act reasonably and not place onerous requests on tenants for documentation.

To negotiate rent relief between 30 November 2021 and 13 March 2022, tenants must provide evidence, such as that outlined above, to demonstrate:

• they had an annual turnover of less than $5 million in 2020-21
• they would have qualified for one of the following if it were still available:
  • 2021 COVID-19 Microbusiness Grant, or
  • 2021 JobSaver Payment.

Eligibility from 14 March 2022 until 30 June 2022

To be eligible from 14 March 2022, tenants must provide their property owner with:

• Tax returns and/or Business Activity Statements to demonstrate an annual turnover of less than $5 million in 2020-21
• Evidence they qualified for at least one of the following, or would qualify but for a COVID-19 Disaster Payment made to the lessee by the Commonwealth:
  • 2022 Small Business Support Program
  • 2021 Micro-business Grant
  • 2021 Business Grant, or
  • 2021 Job Saver Payment.

Generally, tenants that have already established they are eligible for a NSW Grant and have an annual turnover of less than $5 million will not have to re-submit evidence to the property owner to receive mediation protections from 14 March until 30 June 2022.

Businesses and not-for-profits that would qualify for a NSW grant if they did not receive the COVID-19 Disaster Payment are eligible for protections under the Regulation.

Businesses and not-for-profits that opened after 1 June 2021 can only receive a grant, and therefore the commercial lease protections, if their grant application is approved by the Hardship Review Panel.

The Regulation covers holdover leases, but does not cover new leases entered into after 26 June 2021.

The Regulation does not stop property owners from deciding not to renew the lease of an eligible tenant at the end of the lease period.

Commercial property owners that provided rent relief to eligible tenants were entitled to land tax relief of equivalent value, up to a maximum of 100 per cent of their land tax liability for 2021 on the relevant property. Applications for land tax relief have now closed.

Some leases may stipulate that the tenant is liable to pay land tax. In circumstances where land tax is passed on to the tenant, parties may agree to vary the lease in a way that passes the land tax relief through to the tenant, allowing them to benefit from the land tax waiver/ discount.

Commercial property owners and tenants should work together to negotiate a rent relief agreement. Where parties are unable to do this, they must attend mediation through the Small Business Commission. 

Interim arrangements for urgent matters involving a threatened or actual eviction, can be sought through NSW Civil and Administrative Tribunal or the courts.

The mediator cannot impose any outcome but, if a mediation is successful, parties can enter a binding deed.

The Small Business Commission’s mediation service supports parties to resolve disputes in a cost-effective and non-adversarial way. Find out more information about mediation here.

Although parties are usually free to mediate in any way they wish, the Regulation specifically requires certification from the NSW Small Business Commission that a mediation has failed prior to taking any action.  

Mediation is a confidential and cost-effective way to resolve a disagreement that you can’t resolve by yourself.

Mediation helps parties to a dispute find settlement options that they can both accept, without having to go to court. Mediation involves a neutral third-party (the mediator) holding a meeting with the main parties to the dispute. The mediator will speak to the parties privately, as well as altogether, to help them explore all available options and try to find the best one that will work for all.

Mediation can be done in-person or online.

Find out more information about mediation here and to apply for mediation, download the application form or apply online.

For standard matters, the Small Business Commission aims to offer a mediation date within 5 weeks of application.

For urgent matters, mediation can be arranged within days.

For every matter, the Small Business Commission aims to set a date and time that works best for all parties to the dispute.

Where mediation is unsuccessful, parties can pursue action through the NSW Civil and Administrative Tribunal or the NSW civil courts.

Interim arrangements for urgent matters involving a threatened or actual eviction, can be sought through NSW Civil and Administrative Tribunal or the courts.

You should get legal advice before commencing any action in the Tribunal or the courts.  

It is in the interests of all commercial property owners and financially distressed tenants to negotiate mutually beneficial rent relief agreements. The NSW Government will support parties to do this by scaling up the Small Business Commission to provide: 

• advice on issues for property owners and tenants to consider when negotiating rent relief agreements; and
• additional mediation support to ensure disputes are resolved in a cost-effective and non-adversarial way. 

If commercial property owners breach their obligations under the new Regulation, the tenant must seek mediation in the first instance through the NSW Small Business Commission.

Where the property owner and tenant are unable to reach an agreement through this process, the parties will be able to pursue action through the civil courts. In the case of a retail lease dispute, the matter may proceed through NSW Civil and Administration Tribunal (NCAT).

The tenant should contact NSW Small Business Commission where staff will provide guidance on the appropriate next steps. 

The Commission’s mediation service can support tenants and property owners to resolve disputes in a cost-effective and non-adversarial way.  

If mediation is not successful, parties may take their claim to the civil courts. Retail lease disputes can be heard in NSW Civil and Administration Tribunal (NCAT). 

The Regulation promotes collaboration and negotiation between property owners and tenants to ensure business continuity and a return to normal trading after public health orders are lifted.

We understand the package could place additional pressure on property owners, however, we are trying to share the load more evenly during these challenging times. We encourage businesses with loans to contact their banks for additional relief arrangements.

Amendments to the Regulation on 24 September 2021 clarify that a landlord can ask their tenant for evidence that they continue to be an impacted lessee under the Regulation. The request for evidence must be reasonable and cannot be made more than once every two weeks. A landlord may, for example, ask their tenant to provide evidence every fortnight that they continue to qualify for a NSW government grant (or would continue to qualify if the relevant grant was still available).

Here are sample letters you can use to begin discussions on COVID-19 rental relief.

• Sample letter for tenants to negotiate with property owners
• Sample letter for property owners to negotiate with tenants

Overview of commercial leasing changes Has the Regulation lapsed? How are tenants still protected by the Regulation? What was the purpose of the Regulation? Why did the NSW Government introduce the Regulation? Can a tenant and property owner still negotiate rent relief for a period during which negotiating rent relief is not required? What are the leasing principles in National Cabinet’s Code of Conduct? What rent reductions must property owners provide? For what period of time do property owners need to provide rent relief? I was an impacted lessee and have not renegotiated rent yet. Can I still renegotiate my rent for the periods I was an impacted lessee? My rent was due to be increased before 13 March 2022. Can it be increased now? My rent is due to be increased later in the year. Now 13 March 2022 has passed, can it be increased earlier, or by an additional amount to take into account that the previous two rent increases didn’t occur? What period should be used to calculate decline in turnover for the purposes of rent reduction? How should deferred rent obligations from 2020 be treated? Are NSW Government Grants considered as part of a tenant’s turnover? I transitioned to selling goods from a warehouse and not the shopfront I lease, should my online sales be considered when calculating my decline in turnover? When does my landlord need to respond to my request for rent relief? During what time periods did the rules under the Regulation apply? I am a sub-lessee. Do the NSW regulations apply to my sub-lease? Who should I negotiate with? Can a lessor (landlord) take action for a breach that occurred prior to 13 July 2021? Where can I find the Regulation? My situation relates to events before the start of the current leasing regulations on 13 July 2021. What regulations applied then and how do they work? Can a tenant ask their landlord to extend their lease for an equivalent period of time of the agreed rent deferral? When can my landlord increase my rent again?

Eligibility Which tenants are eligible for the rent relief protections under the Regulation? How are franchises and corporate groups be treated? How do I demonstrate to my property owner that I am eligible for the commercial leases protections? I have received the Commonwealth Disaster Payment, am I eligible for protections? I am not eligible for a grant because I opened my business after 1 June 2021, am I eligible for protections? Are holdover leases covered? If the lease passes the land tax liability through to tenants, how should land tax concessions for landlords be treated when negotiating rent relief?   Disputes and mediation What does it mean to enter “mediation” for a rental relief agreement? Do I have to mediate through the NSW Small Business Commission? How does mediation work? How long does it take to arrange mediation after an application is made? Where do I go if my property owner won’t agree to provide any rental relief, even after mediation? How will the government support the negotiation of rent relief agreements? What are the penalties for a property owner who breaks any of these rules? For example, how will you enforce the rent freeze increase rule? Who does a tenant complain to if they are threatened with eviction or not provided rent relief?   Property owner questions Isn’t this policy unfair on property owners? How do I know if my tenant continues to be eligible under the Regulation?   How to start the conversation of rent relief with the property owner or tenant Are there sample letters available?   Glossary of commercial lease terms