COVID-19 & Retail or Commercial Leases
Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations
On 24 April 2020 Victoria passed the COVID-19 Omnibus (Emergency Measures) Act 2020 (Act) for the purpose of temporarily modifying certain laws in response to the COVID-19 pandemic. The Act made changes to a large number of Acts of Parliament including the laws concerning Retail and Commercial Leases.
On 1 May 2020 Victoria passed the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations) to implement these changes to the laws relating to certain retail leases and non-retail commercial leases and licences.
- prohibit and regulate the usual enforcement rights of landlords during the COVID-19 pandemic period; and
- require landlords and tenants to renegotiate the rent and other terms of eligible leases in good faith before any enforcement action can be commenced.
The Regulations were made on 1 May 2020 and apply for six months retrospectively from 29 March 2020 to 29 September 2020. Because they are retrospective they do not apply to an eligible lease entered into or which came into effect after 29 March 2020. This means the Regulations would not capture a lease which comes into existence as a result of an exercise of an option to renew an existing lease.
What is an eligible lease?
Under the Act, an eligible lease means a retail lease under the Retail Leases Act 2003 (Vic) or non-retail commercial lease or licence:
- that is in effect on 29 March 2020 under which the premises are solely or predominantly used for the purpose of carrying on a business at the premises, under which the tenant; and
- under which the tenant is a SME entity and qualifies for or is participating in the JobKeeper scheme.
The Regulations do not apply to a tenant who is part of a related entity with an aggregate turnover in excess of $50 million or where to a lease or licence of premises that are wholly or predominantly used for agricultural, pastoral, horticultural, grazing or farming operations.
What prohibitions and restrictions apply?
During the Relevant Period every eligible lease is taken to have the following provisions:
- Work cooperatively – every landlord and tenant must act in good faith, cooperate and act reasonably to implement the intent of the Regulations.
- No breach – the tenant under an eligible lease is not in breach for:
- not paying rent; or
- reducing the opening hours or ceases to operate the business at the premises.
- No rent increase – no increase in the rent payable will apply unless:
- the landlord and tenant agree in writing, or
- the increase relates to turnover rent.
- Extension of term – if the payment of rent is deferred by agreement between the landlord and tenant, the landlord must offer the tenant an extension of the term for a period equivalent to the period for which the rent is deferred, unless the landlord and tenant otherwise agree in writing.
- Recover of outgoings or expenses – the landlord must consider waiving recovery of any outgoings or other expenses if the tenant is not able to operate their business at the premises.
- Reduction in outgoings – the landlord must pass on any reduction of any outgoings to the tenant and must reimburse to the tenant any excess amount already paid for the outgoing.
- Payment of deferred rent – the landlord must not request payment of any part of the deferred rent until the earlier of:
- 30 September 2020; and
- the expiry of the term, and the deferred rent must be amortised over the greater of the balance of the term and at least 24 months.
- No fees, interest or charges – the landlord must not impose any fee, interest or charge in relation to the payment of deferred rent.
- Confidentiality – except as permitted under the Regulations, the landlord and tenant must not divulge or communicate any personal information or information relating to business processes or financial information.
What a landlord cannot do?
During the Relevant Period the landlord must not take the following action under an eligible lease for non payment of rent if the tenant requests rent relief from the landlord and satisfies some evidentiary requirements:
- evict or attempt to evict a tenant;
- re-enter or otherwise recover, or attempt to re-enter or otherwise recover, the premises;
- have recourse or attempt to have recourse to any security
During the Relevant Period a tenant is entitled to request rent relief from the landlord.
The tenant’s request for rent relief must be in writing and be supported by:
- a statement that the lease is an eligible lease; and
- information evidencing that:
- the tenant is an SME entity; and
- qualifies for and is a participant in the JobKeeper scheme.
The landlord must offer the tenant rent relief within 14 days of receiving the tenant’s request or such other time frame as agreed between the landlord or tenant in writing.
The landlord must offer rent relief to the tenant for the Relevant Period which:
- relates to up to 100% of the rent payable; and
- provides for a waiver of rent of no less than 50% of the rent*; and
- takes into account:
- the tenant’s reduction in turnover;
- a waiver of outgoings or any other amount payable;
- whether a failure to offer sufficient rent comprises the tenant’s ability to fulfil its obligations under the lease; and
- the landlord’s financial ability to offer the rent relief; and
- any reduction to any outgoings charged, levied or imposed
(*you read that right – it’s waiver, not deferral, of at least 50% of the rent. In negotiations over the remaining 50% these may include a deferral of payment of part of the balance of the rent over an extended period of time)
The landlord and tenant must negotiate the landlord’s offer of rent relief in good faith.
The rent relief agreed between the landlord and tenant can be given effect by:
- variation of the eligible lease; or
- any other agreement that gives effect to the rent relief, either directly or indirectly.
The Regulations do not prevent the tenant from requesting further rent relief during the Relevant Period.
The landlord and tenant may refer any dispute to the Small Business Commission for mediation.
Although the mediation process is not mandatory, you cannot apply to Victorian Civil and Administrative Tribunal or any court of competent jurisdiction unless the Small Business Commission has certified that the mediation has failed or is unlikely to resolve the dispute, or otherwise with leave of the Supreme Court.