New COVID-19 Commercial Leases and Licences Regulations

As you may be aware, the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 were passed on 1 May 2020 which provide a framework for commercial landlords and tenants if rent relief is required.

Pursuant to the Regulations, a landlord and tenant must cooperate and act reasonably and in good faith in all discussions and actions.  Below are some important points for landlords to now be aware of:

The Lease Must Be An ‘Eligible Lease’

Firstly, for the legislation to apply, the lease must be an eligible lease.  An eligible lease is one:

• which was in place as of 29 March 2020; and
• under which the tenant:
  1. is a small to medium enterprise (has an annual turnover of less than $50million) (‘SME’); and
  2. is an employer that qualifies for and is participating in the JobKeeper payment scheme (30% reduction in turnover).

A Tenant Will Not Be In Breach

A tenant will not be in breach of the lease if during the 6 month moratorium period from 29 March to 29 September 2020 (moratorium period) they:

1. fail to pay their rent or part of their rent, as agreed, so long as they make contact with their landlord and make a formal request for rent relief;
2. reduce the opening hours of the business; and/or
3. close the premises and cease to carry out any business.

The Process To Follow For Rent Relief

The Regulations set out the following process for rent relief:

1. A tenant may request rent relief from the landlord which must be made in writing and be accompanied by:

• A statement by the tenant that the lease is an Eligible Lease and is not excluded from the Regulations;
• Information that evidences that the tenant is an SME and that it qualifies for and is participating in the JobKeeper payment scheme.

2. Upon receiving the tenant’s request for rent relief as stated above, a landlord must offer rent relief to the tenant within 14 days after receiving the request or another time frame as agreed by the parties.
3. A landlord’s offer of rent relief must

• relate to up to 100% of the rent payable;
• comprise not less than 50% in the form of a waiver of the rent;
• apply for the moratorium period ; and
• take into account:
• the reduction in the tenant’s turnover;
• any waiver of outgoings if the tenant is unable to operate its business;
• whether the tenant’s ability to fulfil its obligations under the lease would be compromised if relief was not provided;
• the landlord’s financial ability to offer rent relief; and
• whether the landlord has received any reduction in outgoings charged, imposed or levied.

4. Once the tenant receives the landlord’s offer for rent relief, based on the specific circumstances of the lease, the parties should work together to reach an agreement as to the rent relief to apply and then ensure that the details of that agreement are correctly and accurately recorded.

Outgoings

If a tenant is unable to continue operating their business, a landlord must consider waiving recovery of any outgoings or expenses payable over the moratorium period and may cease to provide, or reduce, any services provided to the premises.

If a landlord receives a reduction in any outgoings charges, imposed or levied in relation to the premises, a landlord must pass on that reduction to the tenant.

Deferral of Rent and Extension of Lease

If the parties agree to a rent deferral, a landlord must not request payment of the rent until the earlier of 29 September 2020 and the lease expiry date.

Any rent deferral is to be amortised over either the balance of the lease term or a period of not less than 24 months, whichever is the greater.

If a landlord offers a deferral of rent, they must also offer the tenant an extension to the term of their lease equivalent to the period for which rent is deferred and on the same terms and conditions.

Restrictions on a Landlord

If a tenant is granted rent relief, a landlord must not:

1. Increase the rent during the moratorium period , unless the parties agree otherwise;
2. Evict or attempt to evict a tenant who fails to pay the rent, reduces their trading hours or ceases operating and closes the business altogether;
3. Re-enter or recover or attempt to re-enter or recover the premises;
4. Require a tenant to pay interest or other fees or charges in relation to any deferred rent payment; or
5. Have any recourse or attempt to have any recourse to the tenant’s security deposit.

Failure to comply attracts a maximum fine of $3,304.40.

If An Agreement for Rent Relief Cannot be Reached

It is firstly important to note that the Regulations set out that a landlord and tenant must cooperate and act reasonably and in good faith in all discussions and actions.

If a dispute arises, however, or an agreement cannot be reached between the parties themselves, free mediation services are available through the Victorian Small Business Commission.

If the dispute is unable or unlikely to be resolved at mediation, the Victorian Small Business Commission can issue a certificate stating that mediation has failed and VCAT and the Courts will then have jurisdiction to hear the matter.

Tenant’s Failure to Comply with Regulations

If a tenant fails to request rent relief by following the procedure set out in the Regulations, that tenant will not be afforded the protections under the Regulations.

Excluded Leases

It is important to note that the Regulations do not apply in the following circumstances:

1. Agricultural Leases and Licenses are excluded:.
2. If the tenant is a member of a prescribed group of entities, and the aggregate turnover of that group exceeds $50 million; or
3. If there is a relationship or connection between the tenant and another entity that is prescribed, and the aggregate turnover of the tenant and the other entity exceeds $50 million.

Land Tax Relief

Landlords who provide rent relief to their tenants can apply to the State Revenue Office for a discount of 25% of their annual land tax and a deferral of the balance until 31 March 2021.  If a discount is claimed, a landlord is required to pass on this discount to the tenant pursuant to the Regulations.

For further advice please call Anna Doughan in Bendigo on 5434 6666 or John Wellington in Castlemaine on 5472 1588.