COVID-19
On this page, we’ve brought together the information we have on COVID-19 relevant for commercial tenancies in particular. We’ve done our best to provide some helpful summaries and will update this page as new information comes out.
Commercial Tenancies
Victoria’s Commercial Leasing Regulations are here!
It’s official! The Commercial Leasing Code of Conduct (well, most of it) has finally made it into law in Victoria.
The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (the Regulations) have come into force. Let’s explore what the new Regulations say, and what it means for your commercial lease.
Who’s eligible?
First things first: eligibility. In simple terms, the Regulations apply to a tenancy where the tenant:
has an annual turnover of less than $50 million; and
qualifies for, and participates in, the JobKeeper scheme.
The Regulations exclude certain farming leases, such as leases of land used for agriculture, horticulture, grazing, poultry farming, or similar farming-related activities. If you’re unsure whether your lease is excluded, feel free to drop us a line.
Application
The Regulations are backdated to apply from 29 March 2020 for a period of six months, to 29 September 2020.
Rent relief
Probably the key aspect of the Regulations are the provisions around rent relief and particularly what rent relief is available to tenants, and how can it be secured.
Obtaining Rent Relief
If you’re an eligible tenant, your landlord is now legally obliged to offer you rent relief - as long as you follow the methodology that is set out within the Regulations.
The methodology for securing rent relief really comprises three (or four) key steps:
The Tenant must request rent relief in writing, with the ‘prescribed information’ (see below).
The Landlord must offer the tenant rent relief within 14 days of the Tenant’s request.
On receipt of the landlord’s offer for rent relief, the Landlord and Tenant must negotiate variations to the lease in good faith.
If it doesn’t go to plan and the landlord and tenant can’t agree on rent relief, either party may refer a dispute to the Victorian Small Business Commission for mediation.
The tenant’s request and the ‘prescribed information’
The tenant must provide the landlord with the following information when requesting rent relief in writing:
A signed statement from the tenant confirming that the Regulations apply to the lease; and
Information to show that the tenant:
a. has an annual turnover of less than $50 million; and
b. is eligible for, and participates in, the JobKeeper scheme.
It may also be helpful for a tenant to provide some evidence of its reduction in turnover, such as a letter from the tenant’s accountant certifying the financial impacts to the tenant’s business.
The landlord’s offer
The Regulations say that within 14 days of receiving a request for rent relief from a tenant, the landlord must offer rent relief.
How much?
Much like the equivalent NSW Regulations, Victoria’s Regulations don’t specifically set out how much rent relief should be offered by the landlord.
Instead, the Regulations say that the landlord must offer up to 100% rent relief. The landlord’s offer must take into account certain things when offering rent relief, including:
the tenant’s reduction in turnover;
whether a failure to offer sufficient rent relief would compromise a tenant’s ability to comply with the terms of the lease;
the landlord’s financial ability to offer rent relief, including any relief provided to the landlord by lenders; and
any reduction in outgoings.
Unlike the National Cabinet’s Commercial Leasing Code of Conduct that was released in April, the Victorian Regulations do not expressly require that rent relief be ‘proportionate’ to the tenant’s reduction in turnover. This means the rule that rent relief must match the reduction in turnover didn’t quite formally make it into the Victorian Regulations.
Instead, it will be up to the landlord and tenant to negotiate the amount of rent relief between themselves.
What type of rent relief is available?
At least 50% of the rent relief offered by the landlord must be in the form of rental waivers that are non-recoverable by the landlord.
The remaining rent relief can be through other means such as rent deferrals, which can be repaid over a prescribed period.
For example, if the landlord offers the tenant rent relief of $4,000 per month, at least 50% of that ($2,000) must be in the form of rent waivers that will never have to be paid by the tenant. The remaining 50% can be deferred and repaid over a longer period.
Landlords and tenants can agree to less rent relief being in the form of waivers, if that suits their specific circumstances.
Deferred Rent
If landlords and tenants agree to some form of rent deferral, the Regulations provide that:
deferred rent must be amortised over a period of at least 24 months or the remaining length of the lease (whichever is longer); and
the first repayment of deferred rent must not fall due until at least 29 September 2020 (the sunset date for the Regulations).
Landlords must not charge fees, penalties, or interest for rent that is deferred under the Regulations.
What about outgoings?
The Regulations provide that a Landlord must “consider” waiving recovery of outgoings while the tenant is not able to operate the business at the premises. If it is reasonable to do so, a landlord may cease providing some services at the premises at the request of the tenant (such as cleaning for a closed shop, for example).
Landlords must also pass on any savings that it is offered for outgoings, such as any reduction or discount of rates, utility charges and the like.
Tenant protections
As well as rent relief, the Regulations offer some further protections for tenants:
Moratorium on evictions
Provided a tenant complies with the methodology for requesting and negotiating rent relief detailed earlier, the Regulations prohibit evictions for non-payment of rent.
This means that, provided you request rent relief in accordance with the Regulations, negotiate in good faith after your landlord has offered you rent relief, and have otherwise complied with the terms of your lease, your landlord can’t evict you for simply failing to pay rent.
Landlords are also prohibited from evicting tenants for reducing trading hours while the Regulations are in force.
Freeze on rent increases
The Regulations prohibit rent increases while the Regulations are in force.
Securing the security deposit
Landlords must not use a tenant’s security deposit to cover the non-payment of rent under the Regulations.
Where to from here?
Tenants looking for some form of rent relief will need to request rent relief in writing in accordance with the Regulations. If you need help with your request and want to ensure it complies with the regulations, we can help.
On receipt of a tenant’s request, Landlords must offer rent relief to the tenant within 14 days. Unfortunately, the amount of rent relief is not prescribed by the Regulations, so rent relief will vary on a lease-by-lease (and landlord-by-landlord) basis.
It’s important that tenants and landlords negotiate and work together as far as possible. It’s also worth remembering that if you can’t reach an agreement on rent relief, the matter can be referred to the Victorian Small Business Commission.
We can help
As always, if you’re a commercial tenant, landlord, or leasing agent and need help negotiating rent relief or understanding the Regulations in more detail, we can help. Get in touch with us today to see how we can help and to discuss our tailored, discounted pricing for clients impacted by COVID-19.
Disclaimer
We’re lawyers, so we’re programmed to put disclaimers on things like these. Here goes!
The information presented on this page is general in nature and intended for readers in Victoria, Australia and is current at the date of publication. COVID-19 is an evolving situation. This information does not take into account your personal or business circumstances. Always seek specific, tailored professional advice to determine whether this information is appropriate for your circumstances. This information should not be acted or relied upon without talking to an expert about your particular circumstances first.
Guide for Commercial Tenants: Free Download
We’ve prepared a Guide to Rent Relief for Commercial Tenants.
The Guide provides important information on the framework for negotiating rent relief under the new Regulations.
You can access the Guide here:
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