Resolving a Retail Lease Dispute in New South Wales

The Commonwealth Government set up the Mandatory Code of Conduct Small and Medium Enterprises Commercial Leasing Principles on 7 April 2020. In response the New South Wales Government enacted the Retail and other Commercial Leases (COVID-19) Regulation on 24 April 2020. This legislation sets out how the landlord of a commercial property is to treat their tenant during this period. The NSW Regulation will be in force for six months commencing on 24 April 2020, being the ‘prescribed period’. The landlord and the tenant (being an ‘impacted lessee’ as defined in the NSW Regulation) can be required to attempt to renegotiate the lease in good faith to accommodate the drop in the tenant’s trade as a result of COVID-19. There are wide-ranging restrictions on the lessor’s ability to enforce the terms of the lease and to exercise certain rights under the lease during that period – for example, terminating the lease for non-payment of rent. What happens if the parties cannot reach an agreement on the lease amendments?

Unsuccessful Negotiations

The Code provides a framework for negotiating amendments to the lease during the COVID-19 crisis. The somewhat prescriptive nature of the leasing principles will assist many parties to renegotiate their leases relatively expeditiously. We recommend that any agreed variations to the lease are properly documented. Of course, not all negotiations will result in a mutually acceptable outcome for both parties. In particular, if either the lessee or the lessor (or both) were already in financial distress, or are suffering acutely from the economic effects of the pandemic, a negotiated settlement will be more difficult to achieve. The Code envisages that any reductions in rent should be proportionate to the impacted lessee’s reduction in turnover. However, in some cases, it may take some time for the full extent of reductions in turnover to materialise – which may lead to a stalemate. Due to various reasons, some negotiations will inevitably fail. What happens then?

Mediation

If negotiations failed, parties should mediate a retail lease dispute before making an application to the NSW Civil and Administrative Tribunal (NCAT) or a court. Either party can arrange for mediation by referring the dispute to the NSW Small Business Commissioner, who acts as the Registrar for Retail Tenancy Disputes under the Retail Leases Act. Parties share the cost of mediation equally or as otherwise agreed. Mediation is a formal dispute resolution process that takes place outside of court. It involves the parties meeting, in a confidential setting, to discuss the dispute and attempt to reach a suitable outcome. The mediator facilitates this meeting by providing both parties with the opportunity to explain their position. She or he will ask follow-up questions, help explore possible options and clarify the issues in dispute. The mediator does not, however, make a decision – instead, the parties must agree on a resolution. It’s a good idea to put the resolution in writing and have both parties sign. This ensures that the terms of the agreement are clear and helps parties formalise the agreement later if necessary.

What to Expect at Mediation

Mediation is a tried and tested dispute resolution process. It is a structured negotiation facilitated by an independent, third-party mediator, intending to achieve settlement of a dispute. The role of the mediator is to help the parties clarify the real issues and explore the various options available to achieve a settlement – the mediator does not make a determination of the issues in dispute. While there is no prescribed format, mediations often begin with a joint session in which the mediator will encourage the parties to have an open discussion to identify and discuss the obstacles to settlement. The joint session is usually followed by separate sessions between each party and the mediator, in private, to further explore the issues with a view to arriving at a negotiated resolution. To encourage open dialogue, information exchanged during mediation is treated as confidential and subject to ‘without prejudice’ privilege (meaning that it is not admissible in evidence in any subsequent proceedings relating to the dispute). Prior to the onset of COVID-19, the vast majority of mediations would take place in a single physical location, usually with a separate room assigned to each party (for the private sessions). While, at the time of writing, some states are beginning to ease their social-distancing restrictions, it may still be the case that your mediation takes place online via video conference.

Apply to NCAT

The NCAT deals with retail lease disputes in its consumer and commercial division. A party must meet the threshold requirements set out by the Act to make an application to NCAT: • A certificate from the NSW Small Business Commissioner must accompany the application stating either: - mediation was unsuccessful, or - mediation was unlikely to resolve the dispute. • The application must be either: - a retail tenancy claim, - or an unconscionable conduct claim. • The conduct that is the subject of the claim must have taken place within the last three years; and • The claim cannot exceed $400,000. NCAT does not follow all of the strict procedural rules of a court. Also, lawyers do not have an automatic right to represent their clients at NCAT. Rather, a party must request this and the tribunal grants permission.

Initiate Court Proceedings

Courts rarely deal with retail lease disputes. In fact, the Act states that as a general principle, the Tribunal (i.e. NCAT) and not a court should address these issues. When a party makes an application to another court relating to a retail lease dispute, the court must transfer the matter to the Tribunal unless it’s convinced it is in the ‘interests of justice’ to hear the matter. However, making an application to the court may be necessary for certain circumstances. For example, where a party requires an urgent court order preventing the other party from taking a certain action, such as terminating the lease (also known as urgent interlocutory relief).
The law is complex and difficult to understand so we make sure we take the time to make sure you thoroughly understand and then how we will work with our knowledge of the law to obtain the best possible result. If you need legal help to resolve leasing disputes issues in NSW, please make an appointment by ringing me on my mobile or emailing me. I am available during office hours at my city office or after hours and weekends at my Riverwood office.

Contact JCL Legal now!

sources: legalvision.com.au, hallandwilcox.com.au