In a further attempt to ease the financial pressures created by the COVID-19 pandemic on businesses and commercial landlords, the State Government has recently introduced new measures.
Business and Jobs Support Fund
To assist businesses to manage the negative effects of COVID-19, the South Australian Government is providing $10,000 grants to eligible businesses to support their operations.
A one-off grant is available to a business that:
Lifting of emergency restrictions
Whilst the directions made under the Emergency Management Act 2004 have ensured the health emergency has been contained in the State, businesses have suffered great disruption and subsequent economic loss. The State Government is beginning to ease such directions to facilitate the gradual re-opening of businesses, guided by the recovery steps recently proposed by National Cabinet.
On 11 May 2020, among other changes, the State Government introduced an updated direction relating to business closure, the Emergency Management (Non-Essential Business and Other Activities No 5) (COVID-19) Direction 2020 (Business Direction). The Business Direction permits certain businesses to either fully or partially re-open and operate, provided they comply with distancing and density requirements. Currently, pursuant to the Business Direction and the Emergency Management (Gatherings No 2) (COVID-19) Direction 2020 (Gatherings Direction), all businesses, whether permitted to allow gatherings of 10 people or more, must ensure:
Businesses will need to ensure they follow the latest State directions in relation to business activities in order to avoid potential fines of $5,000. Businesses can find up-to-date information here.
Changes to emergency measures affecting commercial tenancies
The State Government recently introduced the COVID-19 Emergency Response (Further Measures) Amendment Bill 2020 (Bill) on 12 May 2020 to amend the COVID-19 Emergency Response Act 2020 (Act). The Bill has now passed both Houses and is awaiting assent. Once it receives assent it will come into operation. Until such time, it may receive corrections and so the following commentary is made subject to any changes that may occur before an official instrument is released.
In relation to commercial tenancies, section 7 of the Act will be completely substituted by the new provisions under section 4 of the Bill. These new provisions provide for a more flexible framework for the Government to modify commercial tenancies and to incorporate elements of the National Mandatory Code of Conduct (Code) that have been overlooked until now in South Australia.
The Bill has been accompanied by the COVID-19 Emergency Response (Commercial Leases No.2) Regulations 2020 (Regulations). The Regulations will come into operation contemporaneously with the Bill. They have largely incorporated the current provisions relating to commercial tenancies under the Act, but also introduce new requirements for parties to make genuine attempts to negotiate in good faith in all circumstances. The Regulations will apply from 30 March 2020 until 30 September 2020.
Good faith negotiations pursuant to the Regulations are required to take into account the economic impacts of the pandemic on both parties. This means landlords should not be forced to bear the full burden. A landlord’s financial circumstances and realistic abilities to grant any relief to tenants are to be considered.
Nevertheless, where a tenant is deemed to be a suffering ‘affected lessee,’ the landlord will still be prohibited from taking action for termination and eviction for non-payment of rent. An ‘affected lessee’ is defined as one suffering financial hardship as a result of the COVID-19 pandemic with turnover of less than $50 million in a relevant year. JobKeeper eligibility will remain relevant in making a determination as to whether the tenant is suffering financial hardship.
Parties to commercial tenancies may apply to the Small Business Commissioner to mediate a dispute in respect of negotiations or a lease agreement, and failing successful mediation, to the Magistrates Court for a determination. If parties to a commercial tenancy have made an agreement to modify their lease from 30 March 2020 and apply to the Court in relation to a dispute of the agreement, the Court may only operate to affect the agreement from the date the Regulations come into operation.
The Regulations control waiver and rent deferral processes in respect of Court orders, mandating that for orders granting rent relief to a tenant, 50% of the relief be in the form of a waiver and for orders of deferral, rent be repaid over a period not exceeding 24 months. The Regulations do not, however, prescribe such rules for parties to commercial tenancies to follow when negotiating modifications to their lease. Parties are therefore provided with a guide as to how they should act outside of Court, but are not compelled to follow it.
Given the Regulations do not strictly prescribe a process for the arrangement by parties of rent waivers or deferrals (unlike the Code), they arguably still do not go far enough to assist negotiations. The Law Society of South Australia has made a submission to the State Government that the Regulations do not adequately reflect the Code and fail to address uncertainties that parties to commercial tenancies are currently experiencing.
We will continue to monitor any further modifications and clarifications by the State Government in relation to commercial tenancies.
Land tax relief for commercial landlords
In order to provide some assistance to landlords, the State Government recently introduced land tax relief by way of reductions and deferrals.
Commercial landlords may be eligible for a 25% reduction on land tax payable on a parcel of land for the 2019-2020 financial year if they reduce rent for a tenant suffering financial hardship due to COVID-19 by an amount at least equivalent to the land tax reduction, provided:
The 25% reduction is also available to landlords who have been unable to secure a tenant due to COVID-19, provided the land was leased up to 30 March 2020 but has since been vacant due to the pandemic. Furthermore, landlords who are eligible for the 25% reduction and who have already paid land tax for 2019-2020 will be refunded an amount equal to the value of eligible land tax relief. Applications for land tax reduction will be open until the end of June 2020 through RevenueSA.
Additionally, landlords paying land tax quarterly in 2019-2020 can defer payments for the third and fourth quarters for up to 6 months. Such deferrals will then apply as arrears for 2020-2021 land tax payments. There is no application process for deferral of payments.
This article provides general comments only. It does not purport to be legal advice. Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.
Seva Surmei, Principal in our Business Transactions Team
Direct Telephone: +61 8 8210 2243
Jacqui Ballard, Law Graduate in our Business Transactions Team
Direct Telephone: +61 8 8210 2284