In mid-January this year, in light of Omicron’s impact on NSW small and medium-sized businesses, the NSW government extended the rent deferral and relief measures for commercial tenants with an annual turnover of less than AUD 5 million, with the extension running until 13 March 2022. At the height of last year’s NSW outbreak, on 14 July the NSW government enacted the Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the “Regulation”), and on 13 August passed an amendment that provided greater protection for tenants who entered leases before 26 June 2021 and were affected by the pandemic.

Under the Regulation, landlords must negotiate a rent relief agreement with eligible tenants experiencing financial distress due to COVID-19 public health orders, and during negotiations both landlord and tenant must take into account the leasing principles set out in the Regulation and the economic impact of the pandemic.

Under these principles, landlords are required to renegotiate rent with eligible tenants in good faith.

The leasing principles in the Regulation provide: landlords must reduce rent in proportion to the tenant’s decline in turnover. This means that if a tenant’s turnover has fallen by 40% due to COVID-19, the landlord should offer 40% rent relief. At least 50% of any rent relief must be in the form of a waiver, with the balance able to be deferred. The deferral period is the remainder of the lease or 24 months, whichever is longer.

The Regulation also provides tenants with substantial protections. For example, landlords may not take certain actions against eligible tenants, such as eviction (unless the landlord has renegotiated rent with the tenant as required). NS Legal published an article at the time providing further interpretation and analysis, which you can read here:NSW Official Announcement: Commercial Tenant Rent Deferral and Relief Period Extended to Ease Pandemic Impact on Small and Medium Businesses!

 

Among the enquiries from clients seeking our legal assistance or advice in this area, we have seen that when some tenants and landlords first enter into a lease agreement (or during the performance of the lease), certain landlords engage in deceptive and misleading conduct towards tenants, and in some cases fail to comply with the true disclosure obligations required by law.

This is most common in retail leases and small business leases. This article therefore uses NSW legislation as the example to provide a targeted reminder.

First, what is a retail lease?

This definition comes from the NSW Retail Leases Act 1994. It is generally determined by location and nature — broadly, shops and sales outlets in retail shopping centres or complexes, and/or premises used to sell, hire, or provide goods or services to the public, can be classified as retail leases.

What the law requires of the landlord

The documents relating to a retail lease or renewal are to be provided by the landlord or the letting agent. Before the parties finalise and sign the lease agreement, the landlord or letting agent is responsible for providing the following documents:

• a draft copy of the proposed lease;
• the lessor’s disclosure statement;
• the NSW Retail Tenant’s Guide, which introduces the rights and obligations of retail tenants and landlords and explains key commercial matters.

Many retail landlords are not familiar with the disclosure statement

The purpose of the disclosure statement is to provide complete and accurate information so that the tenant can make an informed decision about the proposed transaction.

– For a newly signed lease agreement, the landlord or letting agent must provide the disclosure statement to the retail tenant at least 7 days before the new retail lease is signed.

– For a renewal, the landlord or letting agent must also issue an updated written disclosure statement. This can be a copy of the original or a fresh statement containing any new information.

If the letting agent or landlord fails to provide the disclosure statement at least 7 days before the lease takes effect, or if the disclosure statement contains materially misleading, incomplete, or untrue information, the tenant has the right, within the first 6 months after the lease takes effect, to give written notice to terminate the lease, and also has the right to claim compensation for reasonable costs incurred in entering into the lease.

However, note that the disclosure statement can be negotiated and amended. It may be varied by agreement of the parties before or after the lease commences, with the variation taking effect from the date agreed during the negotiations.

Disclosure statements that are incomplete or inaccurate

The above outlines the standard process and hard legal requirements. We have also seen landlords or letting agents who handle the process well, but whose information is not sufficiently complete or accurate — for example, in the following situations:

• the outgoings listed in the disclosure statement are not sufficiently accurate, complete, or detailed — for example, not all outgoings are itemised, or the estimates are inaccurate;
• the amounts actually charged exceed the estimates, with no reasonable explanation or supporting basis provided;
• the information in the letting advertisement is inaccurate;
• certain prior circumstances of the leased property have been concealed.

Finally

If the landlord has failed to meet their legal obligations, or if the tenant discovers that the situation does not match what was originally set out in the disclosure documents, and this has caused material loss or disruption to the business, the tenant may terminate the lease without liability to compensate the landlord. Where the conduct amounts to serious deception, fraud, or misleading information, the tenant may also claim damages from the landlord.

To minimise disputes and subsequent complications, retail landlords are advised to involve a lawyer when signing a lease agreement, or to actively seek legal advice.