LG Insight | Commercial Leasing Update

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Commercial Leasing Update- COVID-19 Regulations & practicalities of the RCLA amendments for councils

MARCH 2021

At a glance

• Although the COVID-19 Emergency Response (Commercial Leases No 2) Regulations 2020 (SA) (COVID-19 Regulations) expired on 3 January 2021, certain commercial tenants are still protected in respect of breaches occurring during the pandemic period.
• With the amendments to the Retail and Commercial Leases Act 1995 (SA) (RCLA) having come into force on 1 July 2020, Councils are reminded of some key practical impacts of those amendments.

Status of COVID-19 Regulations

The COVID-19 Regulations, which brought in temporary protections for commercial tenants during the pandemic period, expired on 3 January 2021.

The key protection was that landlords were prohibited from taking certain enforcement action under the lease (including re-entry, termination, or drawing on a Bank Guarantee) on the grounds of non-payment of rent or outgoings, where a commercial tenant was suffering financial hardship as a result of COVID-19.

Parties were required to negotiate in good faith, temporary arrangements. If no agreement could be reached and the tenant was entitled to the protection of the COVID-19 Regulations, the dispute could be referred for mediation with the Small Business Commissioner (Commissioner), and if mediation was unsuccessful, to the Magistrates Court.

Despite the expiry of the COVID-19 Regulations on 3 January 2021, certain affected tenants are still entitled to protection in respect of the period covered by the Regulations, being from 30 March 2020 until 3 January 2021. If the breach occurred during that period and the tenant has the protection of the Regulations, the landlord cannot take any enforcement action (even after 3 January 2021), until going through the resolution process outlined in the Regulations.

Any failure by a tenant to pay the rent or outgoings due after 3 January 2021 will not be affected by the COVID-19 Regulations.

Practical impacts of the RCLA amendments

The amendments to the RCLA came into force almost 8 months ago, on 1 July 2020.  However, some landlords have not fully embraced the practical impacts of these changes, particularly those relating to the period prior to entering into a lease. We note the following key changes for Councils to be aware of:

• There is no longer a requirement for landlords to provide tenants with a disclosure statement for a renewal of a lease. We note that the definition of ‘renewal’ in the RCLA includes to a new lease entered into by the same parties (on the same or different terms). Councils are no longer required to issue disclosure statements in such situations.
• At the same time as a draft lease is provided to a proposed tenant, landlords must provide the information brochure published by the Commissioner. There is an expiation fee of $120 or maximum penalty of $800 if the brochure is not provided. The brochure is available from the Commissioner’s website (Small Business Commissioner (sasbc.sa.gov.au)).
• The Commissioner can now provide Exclusionary Certificates to tenants wishing to exclude the 5 year minimum term. Tenants may prefer this option over obtaining such a Certificate from a solicitor.

A more detailed explanation of the amendments is available in our Insights article from July 2020 - Insights Paper | Amendments to the Retail and Commercial Leases Act

Next Steps

Both the COVID-19 Regulations and the RCLA amendments have ongoing relevance to the management of commercial leasing arrangements by Councils. Please do not hesitate to contact our team if you have any queries or require advice on these issues.

For more information, please contact one of our Key Contacts.