Whilst the Federal and State Government’s COVID-19 rent relief scheme provides significant benefits and support to tenants in the form of rent reductions or moratoriums, such scheme can cause various issues to landlords with respect to their arrangements with third parties such as banks and insurance companies.
The Mandatory Code of Conduct released by the National Cabinet in April 2020 has prohibited landlords from lease termination or security drawdown in the event of the tenant defaults to pay rent, unless and until negotiations and mediations have been undertaken. In such circumstances, rent relief agreements have often been entered into between the parties by virtue of informal verbal confirmation or with a ‘mere handshake’.
Recently, the High Court of Australia had recently refused special leave for the Insurance Council of Australia (“ICA“) to appeal from the NSW Court of Appeal’s decision in the test case of HDI Global Specialty SE v Wonkana No. 3 Pty Ltd trading as Austin Tourist Park [2020] NSWCA 296, which prohibited insurers to rely on references to the Quarantine Act 1908 (Cth) to deny liability in business interruption policies.
However, the ICA has since commenced proceedings for a second test case with respect to further interpretations of business interruption policies which could exclude liabilities of insurers to cover losses incurred as a result of COVID-19. This second test case is scheduled to be heard in August 2021.
Whilst these test cases are pending judgments, it is extremely important for landlords who intend to claim business interruption losses by virtue of rental reductions or moratoriums to ensure that the circumstance of the loss is clearly established and documented. By encapsulating the rent relief agreement in the form of a legally enforceable deed, this ensures legal certainty should any ambiguities arise, limiting the ability of insurers to evade claims of rental losses and business interruptions.
How can Long Saad Woodbridge Lawyers help?
Our property and commercial team have extensive leasing experience, ensuring that our landlord clients are fully protected during these unprecedented circumstances.
If you would like Long Saad Woodbridge Lawyers to assist you in the preparation of deeds for COVID-19 purposes or have any general leasing enquiries, please do not hesitate to contact Sam Saad on ssaad@lswlawyers.com.au or Dean Woodbridge on dwoodbridge@lswlawyers.com.au, or simply call our office on (02) 9279 4888.
