The COVID-19 Omnibus (Emergency Measures) Act 2020 (“Act”) came into operation on 24 April 2020. On 1 May 2020, the Victorian Government made the COVID-19 Omnibus (Emergency Measures) (Commercial Leases & Licences) Regulations 2020 (“Regulations”). The Act and the Regulations now provide landlords, tenants and practitioners with greater certainty regarding the process to be followed concerning rent relief and mediation, if agreement cannot be reached.
Commencement of Regulations
The Regulations are retrospective and come into effect from 29 March 2020. Landlords and tenants are bound to comply with the requirements of the Regulations as from 29 March 2020, even though the Regulations were not in force and effect at that date.
What is an ‘eligible lease’?
The Act defines those tenancies to which the Act applies as being “eligible leases”. An eligible lease includes:
- a retail lease (being a lease to which the Retail Leases Act applies) and a non-retail commercial lease or licence;
- are in effect when the Regulations were made;
- a lease where the tenant/licensee is a participant in the JobKeeper scheme; and
- a tenant that has a turnover of less than $50 million per annum.
The Regulations expressly exclude from the definition of “eligible lease” any premises which is used wholly or predominantly for farming, grazing or other agricultural type purposes and leases of which the tenant is part of a group of companies with an aggregate turnover in the most recent financial year of more than the prescribed amount of $50 million.
The Regulations have now defined “turnover” as being the following amounts:
- the proceeds of sale of goods and/or services;
- commission income;
- repair and service income;
- rents, leasing and hiring income;
- Government bounties and subsidies;
- interest, royalties and dividends; and
- other operating income.
The Regulations specify that a landlord and tenant under an eligible lease must cooperate and act reasonably and in good faith in all discussions and actions associated with matters to which the Regulations apply. This means that the landlord and tenant must act reasonably and in good faith concerning all negotiations for rent relief.
Process for Rent Relief
The Regulations now detail the process to be followed by a tenant to obtain rent relief. The tenant must make a formal request for rent relief in writing. It must be accompanied by a statement by the tenant that the lease is an eligible lease and is not otherwise excluded from the operation of the Regulations and evidence that the tenant:
- qualifies for, and is a participant in, the Job Keeper Scheme; and
- has a turnover of less than $50 million.
Following receipt of a request for rent relief, a landlord must offer rent relief to the tenant within:
- 14 days after receiving the request; or
- a time-frame as agreed between the landlord and the tenant in writing.
A landlord’s offer of rent relief must be based on all the circumstances of an eligible lease; and
- be up to 100% of the rent payable under the lease during the period 29 March 2020 to 29 September 2020 (“Relevant Period”);
- provide that no less than 50% of the rent relief offered is in the form of a waiver of rent unless the landlord and the tenant otherwise agree in writing;
- apply during the Relevant Period; and
- take into account:
- the reduction in a tenant’s turnover associated with the premises during the relevant period;
- any waiver of outgoings by the landlord;
- whether a failure to offer sufficient rent relief will compromise the tenant’s capacity to fulfil the tenant’s ongoing obligations under the lease, including the payment of rent;
- 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
- any reduction in outgoings concerning the premises.
Prohibition on rent increases
The landlord must not increase the rent payable under the lease at any time during the relevant period unless the landlord and the tenant agree in writing that this restriction does not apply to their lease.
Extension of Term
If there is an agreement to defer rent under an eligible lease, the landlord must offer to extend the term of the lease on the same terms and conditions as applied before the commencement of the Regulations for a period equivalent to the period for which the rent is deferred. There is no obligation on a tenant to agree to any extension of the term.
Recovery of outgoings
The Regulations require that the landlord must consider waiving recovery of any outgoings or other expense payable by a tenant for any part of the relevant period that the tenant is not able to operate their business at the premises.
If any outgoings charged or imposed on the premises are reduced, e.g. land tax relief, the landlord must pass the benefit of that reduction onto the tenant, and if the tenant has already paid the amount, the landlord must reimburse the excess amount to the tenant as soon as possible.
Payment of deferred rent
The landlord must not request payment of any part of the deferred rent until the earlier of 29 September 2020 and expiry of the term of the lease (before any extension agreed under the Regulations). The deferred rent must be amortised over the greater of:
- the balance of the term of the lease, including any extension to the term agreed as part of the rent relief agreement; and
- a period of not less than 24 months.
This means that the deferred rent must be amortised and repaid over a minimum period of 24 months (unless the landlord and tenant otherwise agree), even when the term of the lease expires earlier.
The Regulations provide for the referral of a dispute under an eligible lease to the Small Business Commission for mediation. VCAT is given jurisdiction to hear any disputes under the Regulations as if the dispute was a retail tenancy dispute under part 10 of the Retail Leases Act 2003. An eligible lease dispute may only be the subject of a proceeding in VCAT or a court (other than the Supreme Court) if the Small Business Commission has certified in writing that mediation has failed, or is unlikely to resolve the dispute.
For further information on rent relief during the COVID-19 or to make an appointment, please contact us on 5303 0281 or at [email protected].
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The information on this website is of a general nature only. It is not, nor is it intended to be legal advice. You should consult a lawyer for individual advice about your particular circumstances.
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