COVID-19 Commercial Lease Regulations SA – Amendments

The existing regulations under the COVID-19 Emergency Response Amendment Act which cover the six months from 30 March 2020 are due to expire on 30 September 2020.

The COVID-19 Emergency Response (Commercial Leases No 2) (Prescribed Period) Variation Regulations (Regulations) will be made upon passage of the Bill. It is intended the Regulations will commence on 1 October 2020 and expire on 3 January 2021.

What are the Amendments?
The amended Regulations have extended the “prescribed period” to 3 January 2021 which will in essence extend the period for compliance of the following requirements:

• the obligation imposed on landlords and tenants to negotiate in good faith the rent payable under a commercial lease (refer to regulation 6 of the Regulations);
• the restrictions imposed on landlords from taking enforcement action for certain breaches of a commercial lease (refer to regulation 7(1) of the Regulations); and
• the prohibitions imposed on landlords increasing rent (other than turnover rent) and recovering land tax (refer to regulations 7(4) and 7(5) of the Regulations).

Subject to certain temporal requirements, the Regulations also introduce provisions which restrict landlords from certain prescribed actions, including evictions, by lessors against lessees who have less than $50 million annual turnover and who are suffering financial hardship as a result of the COVID-19 pandemic, require parties to a commercial lease to make a genuine attempt to negotiate in good faith the rent payable and other terms of a commercial lease, establish a mediation regime by the Small Business Commissioner in relation to disputes, and establish a resolution regime for disputes through the Magistrates Court.

Negotiation and Agreement are Encouraged
The parties to a commercial lease are required to make a genuine attempt to negotiate in good faith the rent payable under 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;
b) the provisions of the Act and the Regulations; and
c) the provisions of the Mandatory Code of Conduct.

A lessor is not required to offer a lessee any proportionate reduction in rent payable in the form of waivers and deferrals as it is a matter for negotiation. However, if there has been a reduction in the lessee’s trade during the prescribed period it is expected that the lessor must offer such reduction to the lessee based on the lessee’s reduction in trade as part of the good faith negotiations having regard to the Mandatory Code of Conduct.

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