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Snapshot

  • If a lease is terminated for non-payment of rent, the Court will be inclined to grant relief against forfeiture and once the lease is reinstated, if eligible, the tenant can request the landlord renegotiate the rent and other terms, pursuant to the COVID-19 Regulations.
  • The ‘COVID-19 pandemic period’ commenced on 1 April 2020 (despite the fact that the Regulations came into force on 24 April 2020).
  • Reductions in rent apply based on the reduction in the tenant’s trade during the ‘COVID-19 pandemic period’ and a ‘subsequent reasonable recovery period’ (being no less than six months in this case).
  • For impacted tenants, landlords are prevented from taking action at a later date for failure to pay rent, outgoings, or to trade, where the breach occurred during the prescribed period (24 April 2020 to 24 October 2020).

On 7 April 2020, the National Cabinet adopted the National Cabinet Mandatory Code of Conduct: SME Commercial Leasing Principles during COVID-19 (the  ‘Code’). The purpose of the Code is to impose ‘a set of good faith leasing principles for application to commercial tenancies’ between landlords and eligible tenants (i.e. those who are eligible businesses under the Federal Government’s JobKeeper program). The  Retail and Other Commercial Leases (COVID-19) Regulation 2020  (the ‘Regulations’), gives effect to the Code in New South Wales.

For the first time, in Sneakerboy v Georges Properties Pty Limited [2020] NSWSC 996 (‘Sneakerboy 1’) and then in Sneakerboy v Georges Properties Pty Limited (No 2) [2020] NSWSC 1141 (‘Sneakerboy 2’), the Supreme Court of NSW has provided guidance on the implementation of the Code and the Regulations.

The facts in Sneakerboy 1

The tenant, Sneakerboy Retail Pty. Limited (‘Sneakerboy’), entered into a 10-year lease from Georges Properties Pty Limited (the ‘landlord’) of premises in York Street, Sydney, for the sale of luxury sneakers and streetwear. Sneakerboy provided a bank guarantee of $253,668.90 which was the equivalent of 10 months’ rent plus GST (the ‘Bank Guarantee‘). Sneakerboy had a history of rental arrears. In February 2020, Sneakerboy noted a decline in sales due to COVID-19.

On 12 March 2020, Sneakerboy advised the landlord that ‘due to uncertainty and lack of trade’, it needed to pay the February rent in three parts over three weeks (at [22]). Sneakerboy defaulted. On 20 March 2020, mandatory restrictions required no more than one person could occupy 4m2 of space instore. On 25 March 2020, Sneakerboy removed stock and property from the premises. That same day, the landlord terminated the lease. In its notice, the landlord stated Sneakerboy was in arrears by $65,084.56 and had abandoned the premises and ‘evidenced an intention to no longer be bound by the terms of the Lease’ (at [33]). On 26 March 2020, the landlord cashed the Bank Guarantee (equivalent to 10 months’ rent + GST). On 7 April 2020, the National Cabinet introduced the Code. Sneakerboy enrolled in JobKeeper on 21 April 2020. On 24 April 2020, the Regulations came into force.

After being locked out, Sneakerboy sought relief against forfeiture. The Court noted that if relief was granted and the lease retrospectively continued from 25 March 2020, the Regulations would apply to it. The Code would be irrelevant if the tenant was not entitled to relief against forfeiture as the lease was terminated before the establishment of the COVID-19 regime.

Relief against forfeiture

The Court (at [75]) summarised the following principles relevant to the grant of relief against forfeiture:

  • Where the lease is terminated for non-payment of rent, the Court will generally grant relief against forfeiture. This is because the power to terminate the lease by re-entry is generally regarded as security for the rent.
  • Relief will generally only be granted on the condition that the tenant pay the outstanding rent and the landlord’s costs.
  • The Court may require the tenant to reinstate the Bank Guarantee.
  • The remedy is discretionary, not a right.
  • The relief may be denied where relief is futile because the tenant is incapable of meeting rent payments in the future.

The Court determined that Sneakerboy was entitled to relief against forfeiture, finding it had not in fact abandoned the premises. Rather, it had ceased trading temporarily on account of the lockdown and moved stock/equipment to its warehouse for security reasons and so that it could sell stock online. Relief was determined due to the non-payment of rent. The Court took into account the significant Bank Guarantee. Up until 21 July 2020, the landlord would have still had $55,754.95 in hand, leaving aside outgoings. The granting of relief meant that the lease could be reinstated as of 25 March 2020 with the requirement that the parties renegotiate the rent obligations based on the Regulations.

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