Some small businesses could be eligible for a further six months of rent relief, after a NSW court ruling tested recovery provisions for commercial tenants under the national cabinet’s mandatory code of conduct.
In a ruling last week, the NSW Supreme Court found luxury footwear retailer Sneakerboy should have until at least April 30, 2021, to recover from the COVID-19 pandemic before its landlord can increase rents or evict it.
The business found itself in dispute with its landlord, George Properties, over rent relief measures under NSW’s Retail and Other Commercial Leases (COVID-19) Regulation, which was agreed to at national cabinet in April and has since been legislated separately in each state and territory.
While the code is slated to expire in October, a provision allowing for a “reasonable recovery period” had not been tested in court until last week.
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Now, Sneakerboy’s lawyer Adam Cutri, partner at Bartier Perry, says the door is open for six months more rent relief for thousands of SME tenants.
“The court has made it clear that come October 24, when the regime is due to be repealed, tenants may still be protected under the COVID-19 regulations, with the court indicating that the subsequent reasonable recovery period would likely be at the minimum a further six months after the end of the pandemic period,” Cutri said in a statement.
“Given this decision addresses the national cabinet’s mandatory code it’s likely to have national implications.”
However, the case also tested jurisdictional issues about how disputes between landlords and tenants should be resolved under the code, with the court finding it does not have the power to decide on how lease terms should be varied.
Under the code, state-based arbitration bodies, including the NSW Civil and Administrative Tribunal are listed as enforcement bodies when negotiations about rent relief break down.
However, the court found the tribunal does not necessarily have the power to resolve rent disputes, requiring parties to rely on mediation instead.
“The court has no power to decide an appropriate outcome of the renegotiation, before the parties have had the opportunity to conduct the renegotiation themselves,” Judge Robb said.
“The fact that the court may be required, as a practical matter, to contemplate the possible outcome of a renegotiation that conforms to the requirements of clause 7, for the purpose of making appropriate orders for relief against forfeiture of a lease, do not empower the court to determine the outcome of the renegotiation on the run, as it were.
“It seems at least to be clear that, if the renegotiation required by clause 7 fails, a party has a right to refer the dispute to mediation by the registrar under the Retail Leases Act, and proceedings cannot be commenced in a court until the registrar has certified that the mediation has failed, or the court is otherwise satisfied that the mediation it is unlikely to resolve the dispute.
“It is at least doubtful that the tribunal has the necessary powers to resolve a dispute arising out of a failed renegotiation, even though it is possible that the drafters of clause 8 of the COVID-19 regulation intended that disputes could be resolved.”