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Robert Spiers can always find fault in ‘normal time’ legislation. When circumstances change and legislation is rushed to deal with emerging emergencies, Speirs can find loopholes and anomalies in plague proportions!

One message has been received from government loud and clear in response to the pandemic: landlords will have to take their disinfectant like a man. 

On 7 April 2020, the National Cabinet announced the Code. The Code is a statement of how the parties to qualifying leases are to conduct themselves for the life of the JobKeeper program and, in some respects, during “a reasonable recovery period”. The Code derives its force from the representation on the National Cabinet of all of the states and territories, and their collective will to enact local legislation to reflect the principles embodied in the Code. 

The legislative framework is moving rapidly, and by the time you read this article lawyers like me will be swimming in a swamp of state and territory regulation, all giving voice to the Code in slightly different keys. Lawyers like me are also trying to get a firm handle on how to apply the regulations. 

I know everyone is running at a million miles an hour, and everyone is doing their best, but the absence of conformity on the details means that national industry participants will have to carry a little more lead in the saddle-bags, while they try to apply the Code in seven different ways. 

At the time of writing (4 May 2020), a number of jurisdictions had enacted enabling and/or substantive legislation and regulations. None have applied the Code in all respects, and all have gone off the reservation in slightly different directions. 

For example, the Code is expressed to commence in all states and territories from a date following 3 April 2020. In response, the WA and SA legislation commences on 30 March 2020. Queensland commences on a date to be fixed by regulation, but not earlier than 23 April 2020. And NSW commenced 24 April 2020. The NSW regulation runs for a fixed six months. WA and SA also run for a maximum six months, but the period can be shortened. 

Code Leasing Principle 2 requires lessees to remain committed to the terms of their leases, subject to the trading and other relief afforded by the Code. Material failure to comply with the lease (as modified) will forfeit any protections provided to the lessee under the Code. 

The state legislation to date has failed to pick this up. It is obviously an important point of balance for landlords, and an interesting piece of cherry-picking by the states. 

Industry participants are now required to apply the regulations. Let’s look at one simple question that is being asked: can a lessor terminate a lease during the prescribed period because of a pre-pandemic (and unremedied) failure to pay rent? 

In WA, under s9, a landlord cannot terminate for a breach in the payment of rent that occurs during the emergency period. And s12 goes on to provide that any enforcement action during the emergency period is suspended. So, no termination, whenever the failure to pay rent occurred. 

And this applies, whether or not the lessee is having a crack or has turned off the lights and taken a cruise on the Ruby Princess. 

In NSW, s6 appears to arrive at the same destination as s9 in WA. The NSW regulation says: “…a lessor must not take any prescribed action against the lessee on the grounds of a breach of the commercial lease during the prescribed period consisting of (a) a failure to pay rent…” (emphasis added). 

This seems to say that if the breach in the payment of rent occurs during the prescribed period, the lessor cannot enforce. However, this leaves open the possibility that a lessor can enforce during the prescribed period, if the breach occurred before 24 April 2020. 

This resonates with s5, which says that the regulation applies to rights in relation to circumstances occurring during the prescribed period. A default in the payment of rent before the prescribed period is not a circumstance occurring “during” that period. 

This result is avoided if s6 is read as if it said “… a lessor must not during the prescribed period take any prescribed action…”. 

It is possible that s7 in NSW is an attempt to get over this problem. It says that a lessor must not take or continue prescribed action on the grounds of breach consisting of a failure to pay rent during the prescribed period, unless the lessor goes through a negotiation process (emphasis added). However, if this is the intention, the provision seems to suffer from the s6 problem referred to above. The words “during the prescribed period” still seem to be in the wrong spot. 

If my concern is correct, it appears to produce in NSW the anomalous result that a lessor can re-enter and terminate for non-payment of rent in the period of, say, late March to early April, when lessees were critically impacted by the crisis. 

On the other side of the coin, it also appears to produce the prospect that lessors will not be able to sue lessees for failure to pay rent during the pandemic period, even where the lessee breaches rent obligations that have been negotiated down in accordance with Code Principles 3 and 4.  

There may be more to this story, but we will leave that for another day.  

Both jurisdictions enable dispute processes in consequence of the legislation.  

In WA, the lessee or lessor can apply to the SAT for relief, subject to failure of alternative dispute resolution. If the proceedings relate to a code of conduct dispute, any relief can be ordered, including as to the rent payable, and waiver and deferral. If the proceedings relate to financial hardship in consequence of the pandemic, the Tribunal is also empowered to terminate the lease. This last right is not mentioned in the Code, and in fact appears to be contrary to Code Principle 2. 

In NSW, s10 of the regulation permits the lessor to take prescribed action on grounds not related to the economic impact of the pandemic. 

In addition, the Retail Leases Act 1994 dispute resolution machinery is grafted on to pandemic disputes. This means that if there is a dispute, the usual process of mediation, followed by NCAT proceedings will apply. In considering a decision, NCAT is directed to have regard to the Code principles in relation to proceedings for the recovery of possession from the lessee, termination of the lease by the lessor or the exercise by the lessor of any other right. It does not grant the lessee a right of termination. 

This appears to be a more measured response to the application of the Code principles than the approach taken in WA. 

Fortunately, my sense so far is that disputes will be the exception, rather than the rule, whatever the terms of the legislation. So far, we are seeing in practice, a lot of olive branch, and almost no baseball bat. 

If that trend continues, we will continue to see sensible commercial outcomes, which will have regard to the broad Code principles, rather than see parties trying to leverage advantage based on drafting. I am hopeful we will not need to spend too much time analysing the details.

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