COVID-19 – Temporary Relief Measures for Landlords and Tenants of Eligible Leases in Victoria

COVID-19 – Temporary Relief Measures for Landlords and Tenants of Eligible Leases in Victoria

COVID-19 – Temporary Relief Measures for Landlords and Tenants of Eligible Leases in Victoria

Following the release of the mandatory code of conduct (Code) by the National Cabinet on 7 April 2020 (see our article on the Code here), the Victoria Parliament passed the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) (Act) on 24 April 2020 to introduce a range of temporary measures to assist commercial tenants in response to the COVID-19 pandemic.

On 1 May 2020, the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (Regulations) was published. The purpose of the Regulations is to implement temporary measures which apply to eligible landlords and tenants to mitigate the effects of the COVID-19 pandemic.

Is your lease an eligible Lease under the Act?

The Regulations apply to ‘eligible leases’.

An ‘eligible lease’ is defined as a retail/non-retail commercial lease or licence that was in effect on 29 May 2020 and under which the tenant:

  • is a SME entity (being an entity that had less than $50M in turnover in either or both of the previous and/or current financial year); and
  • an employer who qualifies for and is a participant of the JobKeeper

Notwithstanding the above, the following tenants may be excluded:

  • a tenant who is a member of a prescribed group within the meaning of section 328–125 of the Income Tax Assessment Act 1997 (Cth) with the aggregate turnover of the group exceeding $50 million; or
  • a tenant who has a relationship or connection with another entity who is its affiliate within the meaning of section 328–130 of the Income Tax Assessment Act 1997 (Cth) if the aggregate turnover of the tenant and its affiliate exceeds $50 million.

The Regulations also exclude agricultural leases.[1]

How long will the Regulations operate?

The Regulations operate for the period commencing on 29 March 2020 and ending on 29 September 2020 (Relevant Period).

Key points if the lease is an eligible lease

Under an eligible lease, landlords and tenants must cooperate and act reasonably and in good faith in all discussions and negotiations.

While the Regulations are in effect, landlords are prohibited from terminating eligible leases, taking possession, drawing on a tenant’s security for the non-payment of rent, or reducing trading hours during the Relevant Period. Civil penalties of up to 20 penalty units (about $3,600) can be imposed on landlords for breaching the Regulations.

How the relief measures work

The tenant should make a written request to the landlord for rent relief that contains a statement to the effect that the lease is an eligible lease that is not excluded by other relevant provisions of the Act and includes evidence that the tenant is an SME which qualifies for and participates in the JobKeeper scheme.[2]

The landlord has 14 days to make an offer for rent relief after receiving a request, unless otherwise agreed.  Rent relief can comprise any form of relief provided to a tenant in respect of the obligation under an eligible lease to pay rent, including a waiver, reduction, remission or deferral of rent.

The landlord’s offer of rent relief must have regard to all the circumstances relating to the eligible lease and must:

  1. provide rent relief of up to 100% of the rent;
  2. provide at least 50% of the rent relief in the form of a waiver of rent (unless agreed otherwise in writing);
  3. take into account:

(a) any reduction in a tenant’s turnover;[3]

(b) whether a failure to offer sufficient rent relief would compromise a tenant’s capacity to fulfil the tenant’s ongoing obligations under the eligible lease, including the payment of rent;

(c) the landlord’s financial ability to offer rent relief including any relief provided to the landlord by its lender;[4] and

(d) any reduction to any outgoings charged in relation to the premises.[5]

Rent deferral

If the landlord offers to defer the rent, the landlord must not request for the tenant to commence payment of deferred rent by instalment until the earlier of:

  1. 29 September 2020; or
  2. the expiry of the term of the eligible lease.

The tenant has the greater of 24 months or the balance of the lease term to pay the deferred rent in full.

Unless the parties agree otherwise in writing, a tenant with less than 24 months left to run on their lease must be offered an extension of their lease to allow up to 24 months for payment of any deferred rent that is agreed.

No rent increase

Unless the parties agree otherwise in writing, a landlord must not increase the rent payable under the lease at any time during the Relevant Period.

Request for further rent relief

If the tenant’s financial circumstances materially change during the Relevant Period, the tenant can make a further request for rent relief.

Compulsory mediation

A landlord or tenant may refer a dispute relating to the terms of an eligible lease to the Victorian Small Business Commission (VSBC) for mediation. The parties may have legal representation at mediation unless the mediator requests a meeting without lawyers present.

Court proceedings if dispute is not resolved at mediation

The parties must obtain a mediation certificate from VSBC before commencing legal proceedings at either VCAT or a court (other than the Supreme Court).

What if your lease is not an eligible lease?

Leases that are not eligible leases under the Act will remain subject to existing common law and contractual principles.

What should landlords and tenants do now?

It has been an incredibly challenging time for both landlords and tenants. As one can appreciate, each lease is unique and any rental relief should be considered on a case-by-case basis. We recommend that the parties initiate discussion and negotiation as soon as possible.

DCC has produced articles on a range of legal issues that are COVID-19 related. You can access the articles here.

Authors:

Craig Finlayson
Principal Lawyer

E CFinlayson@davies.com.au
T +61 3 9254 2888
D +61 3 9254 2716
F +61 3 9254 2880

Felicity Dalle Nogare
Senior Associate

E FDalleNogare@davies.com.au
T +61 3 9254 2888
D +61 3 9254 2831
F +61 3 9254 2880

Elizabeth Ho
Associate

E EHo@davies.com.au
T +61 3 9254 2888
D +61 3 9254 2703
F +61 3 9254 2880

 

Disclaimer: This article is general in nature and should not be relied on as legal advice. Before taking any action in relation to the above it is recommended that you obtain legal advice that is specific to your circumstances. The content of this article is current as at 6 May 2020, but is subject to change.

[1] See section 6 of the Regulation.

[2] Section 24 of the Regulations provides that a landlord is entitled to supply the statement and information provided by a tenant under section 10(2) of the Regulations to the Commissioner of State Revenue to apply for any available tax relief, including land tax.

[3] It is unclear what financial information a tenant should provide a landlord. The VSBC is expected to issue a guideline on the financial disclosure requirements.

[4] The Code states that the landlord should share any benefit it receives due to deferral of loan payments.

[5] Section 14(2) of the Regulations requires the landlord to consider waiving outgoings if the tenant is not able to operate its business from the premises.