COVID-19, property

High income threshold edges higher – 2018/19 changes

30 July, 2018

The Federal Government has announced the introduction of a new Code of Conduct (the Code) that is to regulate commercial and retail leases for the duration of the COVID-19 pandemic. The Code is mandatory and expected to be legislated by the States and Territories in the coming days.

The purpose of the code is two-fold:

  1. to establish a uniform set of “good faith leasing principles” to apply to commercial tenancies between landlords and eligible small-medium sized business tenants; and
  2. to provide a “proportionate and measured burden share” between the parties to the lease.

The Federal Government’s message has remained consistent – landlords and tenants must work together to customise tailored solutions that are negotiated in good faith, and reflect the principle of proportionality (i.e. proportionate to the impact of the COVID-19 pandemic on the tenant and to any benefit the landlord receives due to deferral of loan payments).

Who does the Code apply to?

The Code will apply to commercial and retail leases where a commercial tenant (including retail, office and industrial tenants):

  1. has a turnover of $50 million or less;
  2. has suffered at least a 30% decrease in revenue; and
  3. is eligible to participate in the Federal Government’s JobKeeper programme.

We have previously prepared a guide to the JobKeeper subsidy that you can read here.

Retail corporate groups will have their turnover assessed at the group level, as opposed to at the individual retail outlet level, while franchise businesses will have their turnover assessed at the franchisee level.

Further, despite not being legally binding in respect of leases involving tenants that exceed the turnover threshold, the Code implores parties to all leasing arrangements to apply the principles of the Code “in spirit”.

How long will the Code apply for?

Though the Government has not provided a fixed end date, as they have with other stimulus measures, parties to the Code will be bound by the Code for the duration of the COVID-19 pandemic period.

This pandemic period has been defined as the period during which the Job Keeper programme is operational.

Code mandated waivers and deferrals

To ensure financial burdens are being shared between both landlords and tenants, the Code requires landlords to offer rent reductions through a combination of waivers and deferrals. The reduction in rent payable must be proportionate to the eligible tenant’s reduction in trade during the pandemic period and for a reasonable recovery period thereafter.

In extreme cases, this may amount to the waiver and deferral of all rent ordinarily payable over that period.

Under the Code, rental waivers must account for at least 50% of the total reduction in the rent payable  during the pandemic period. If a tenant lacks capacity to fulfil their ongoing obligations under the lease, the Code recommends that further amounts should be waived by landlords if they have the financial ability to do so.

This requirement can be waived by the tenant though.

The Code also requires that rent deferrals be amortised over the remaining lease period or for a period of at least 24 months, whichever is greater. Again, this requirement can be waived by the mutual agreement of the parties.

Moratorium on evictions and recovery confirmed

As foreshadowed by the Federal Government’s previous announcements, landlords must not terminate a lease due to the non-payment of rent during the COVID-19 pandemic or for a reasonable “recovery period” after the pandemic passes.

Additionally, if a negotiated lease still requires the repayment of rent, the Code stipulates that this repayment should take place over an extended period of time that may only commence upon the earlier of the COVID-19 pandemic ending, or the existing lease expiring.

Further, landlords cannot draw on a tenant’s security for unpaid rent either, whether this be a bond, bank guarantee or personal guarantee. Landlords also cannot charge fees, interest or other charges on deferred rent and any amount of reduction provided by a waiver may not be recouped by the Landlord over the term of the lease.

Not one-sided

The obligations arising from the rental relief policy are not solely directed at landlords. Tenants must also honour and remain committed to the terms of their lease, subject to any amendments negotiated under the Code.

A tenant who fails to comply with a substantive term of their lease in a material manner will forfeit themselves from the benefits of any protections that otherwise would have been available to them under the Code.

It’s time to talk

In announcing the introduction of the Code, the Federal Government’s message has remained consistent with previous media statements – landlords and tenants must work together.

Though parties will largely be led by the principles set out in the Code, parties are still encouraged to negotiate “tailored, bespoke and appropriate temporary arrangements” taking into consideration each parties’ particular circumstances.

The Code has also introduced a mandatory mediation process for landlords and tenants who cannot come to an agreement.

In such circumstances, the parties should refer the matter to their state’s appropriate commercial leasing dispute resolution processes, for example The Office of the NSW Small Business Commissioner in NSW or Victorian Small Business Commission in Victoria, for binding mediation.

It takes a village

The Federal Government again announced its expectation that both Australian and international banks will provide sufficient support to landlords and tenants as they navigate these uncharted waters.

As we have previously discussed, a number of Australian banks have extended their business support packages as the financial impact of the COVID-19 pandemic worsens. Commercial landlords with loans of up to $10 million will be eligible for repayment relief for a period of six months, provided that they undertake not to terminate leases or evict tenants unable to pay rent as a result of COVID-19 related financial hardship.

Landlords who are granted loan repayment deferrals are required to share that benefit in a proportionate manner with their tenants under the Code.

Takeaway considerations

In announcing the Code, the Federal Government has reiterated that landlords and tenants share a common interest in working together to ensure both parties can continue to trade during the pandemic.

In light of the mandatory Code, we outline some of the important considerations for commercial landlords and tenants to keep in mind:

  1. Parties must engage in negotiations and attempt to reach a solution that is made in good faith and proportionate to the loss of a tenant’s turnover.
  1. Landlords should request, and tenants should provide, sufficient and accurate information to further such negotiations and help achieve an appropriate arrangement.
  1. As recommended in our previous article regarding the moratorium on evictions, parties should ensure that they accurately document any arrangements that vary the terms of a lease.
  1. Parties must also assist each other with their respective dealings with third parties such as governments and government agencies, utility companies and financial institutions.
  1. Both tenants and landlords should consider whether they are entitled to benefit from the Federal Government’s recent stimulus measures or are entitled to relief from their banks. You can read further about some of the measures being implemented to support SMEs in our articles: Key points on the new Federal Government economic stimulus package for SMEs, and An SME’s guide to the Federal Government JobKeeper subsidy.
  1. Finally, remember that the Code only applies to parties suffering financial stress or hardship as a direct result of the COVID-19 pandemic. The Code does not extend to parties whose financial hardship arises from other causes.

We will continue to keep you updated as the States and Territories legislate the Code and introduce measures to regulate residential tenancies as well.

McCabes has extensive experience in advising both tenants and landlords as to their rights and obligations. If you have any questions or concerns regarding a lease or how the Code may impact you, please do not hesitate to contact McCabes.

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Canadian Court elevates thumbs-up emoji to signature status

In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract.   Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed.   Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph [18], Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)."   Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and   The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and   The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter.   Judgment At paragraph [36], Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship.   Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph [63]: "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest.   What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.

Published by Foez Dewan
29 August, 2023

Venues NSW ats Kerri Kane: Venues NSW successful in overturning a District Court decision

The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane [2023] NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty.  The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.

Published by Leighton Hawkes
18 August, 2023
Litigation and Dispute Resolution

Expert evidence – The letter of instruction and involvement of lawyers

The recent decision in New Aim Pty Ltd v Leung [2023] FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.

Published by Justin Pennay
10 August, 2023