In brief - on 1 May 2020 the Victorian Parliament passed the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations). The Regulations are made under section 15 of the COVID-19 Omnibus (Emergency Measures) Act 2020 (Act)
The Regulations will apply retrospectively from 29 March 2020 and will cease to have effect on 29 September 2020.
Key features of the Regulations
a tenant and landlord must cooperate and act reasonably and in good faith in all discussions and actions to which the Regulations apply;
a landlord under an eligible lease must not increase rent payable under the lease at any time during the relevant period (between 29 March and 29 September 2020), unless agreed by the parties (although this does not apply to turnover rent under eligible retail leases);
if a tenant requests rent relief, the procedure is prescribed under the Regulations;
a landlord’s offer of rent relief must be based on all relevant circumstances, including a landlord’s financial ability to offer rent relief;
provided a tenant complies with the procedural requirements of the Regulations, they will not be in breach of the eligible lease for failure to pay rent;
provided a tenant complies with the procedural requirements of the Regulations, a landlord must not evict a tenant, recover or re-enter the premises, or have recourse to any security if a tenant does not pay the original amount of rent required;
mediation between landlords and tenants will be facilitated through the Small Business Commission. The result from mediation is not binding; and
VCAT or a Court (other than the Supreme Court, unless the Supreme Court grants leave) has jurisdiction to determine any eligible lease disputes.
What is an eligible lease?
Further to our COVID-19 Insight, Victoria’s COVID-19 Omnibus (Emergency Measures) Bill 2020 - Commercial/Retail landlords and tenants, an eligible lease under the Regulations and the Act applies to tenants, suffering financial stress or hardship, that:
- are a small business entity (SME) with an annual turnover of up to $50 million; and
- are an eligible business for the purpose of the Commonwealth Government’s JobKeeper Scheme.
The Regulations exclude leases if the tenant:
a) is part of a prescribed group within the meaning of section 328-125 of the Income Tax Assessment Act 1997 (Cth) (ITAA) and the aggregate turnover exceeds $50 million; or
b) has a prescribed relationship or connection with another entity within the meaning of section 328-130 of the ITAA and the aggregate turnover exceeds $50 million; or
c) has a lease or licence to use the premises for agricultural, farming or grazing activities.
Procedural requirements for tenants
A tenant under an eligible lease must comply with a series of procedural requirements in order to qualify for rent relief.
A tenant's request for rent relief must be:
a) in writing; and
b) accompanied by a statement that the tenant's lease is an eligible lease and include information that evidences that the tenant is an SME entity and qualifies for, and is a participant in, the JobKeeper Scheme.
On receipt of a valid request for rent relief, a landlord must offer rent relief to the tenant within 14 days (unless the parties agree a different time frame).
Further rent relief request
If the financial circumstances of a tenant materially change after a rent relief agreement has been reached, the tenant may make another request to the landlord for further rent relief. The landlord and tenant must follow the same procedural processes in the Regulations for that further rent relief.
Reduction in business hours
The Regulations provide that a tenant will not be in breach of an eligible lease if it reduces the opening hours of the business it carries out at the premises, or closes the premises and ceases to carry out business at the premises.
What are the requirements for landlords?
A landlord’s offer of rent relief must be based on all the circumstances of the lease and relate to up to 100 per cent of the rent payable under the lease during the relevant period; and provide that no less than 50 per cent of the rent relief offered must be in the form of a rent waiver (unless otherwise agreed in writing).
Offers of rent relief must apply to the relevant period (from 29 March until 29 September 2020) and take into account the following:
a) any reduction in the tenant's turnover associated with the premises during the relevant period;
b) any waiver for outgoings payable by a tenant under the eligible lease for any part of the eligible period the tenant is not able to operate their business at the premises;
c) a landlord's financial ability to offer rent relief (including any relief provided to a landlord by any of its lenders as a response to the COVID-19 pandemic); and
d) any reduction to any outgoings charged, imposed or levied in relation to the premises.
Payment of deferred rent
If rent is deferred by agreement between the landlord and tenant, the landlord must not require payment of any part of that deferred rent until the earlier of 29 September 2020 or the expiry of the lease.
A landlord and tenant must also agree to repay any deferred rent over the greater of the balance of the term of the lease or a period of no less than 24 months.
Extension of the term of the lease
If parties agree to defer rent, the landlord must offer the tenant an extension of the term of their eligible lease on the same terms and conditions that applied under the eligible lease before the commencement of these Regulations. The extension offered by a landlord must be equivalent to the period for which rent is deferred (unless a landlord and tenant agree otherwise in writing).
Recovery of outgoings or expenses and reduction in outgoings
If any outgoings payable by a landlord are reduced, the landlord must reduce the amount required to be paid by a tenant in relation to those outgoings commensurately.
If a tenant is unable to operate its business at the premises for any time, the landlord may cease to provide any service (or reduce the provision of services at the premises) as is reasonable and in accordance with a request from the tenant.
A landlord or tenant may refer a dispute about the terms of the lease under the Regulations to the Small Business Commission. Any result from the mediation will not be binding.
VCAT or a Court (other than the Supreme Court, unless the Supreme Court grants leave) has jurisdiction to determine eligible lease disputes. In order to issues proceedings the landlord or tenant must first obtain a certificate from the Small Business Commission certifying that mediation has failed or is unlikely to resolve the dispute.
Land tax relief for landlords
Landlords can claim land tax relief from the State Revenue Office where they have provided tenants, impacted by the COVID-19 pandemic, with rent relief. This is part of the Victorian Government’s $1.7 billion Economic Survival Package.
What does this mean?
Unlike other states, the Regulations do not prescribe an exact formula for the calculation of rent relief. However, landlords and tenants must act reasonably and in good faith in all discussions and actions associated with the Regulations.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.