SME LEASING DURING COVID-19
Last updated: 8 May 2020
To implement the National Cabinet Code on COVID-19 Leasing, the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 were promulgated on 1 May 2020. See our article here for information regarding the regulations.
The regulations require that, in order for tenants to obtain relief, they must send a letter to their landlords which contains prescribed information.
To assist the business community, we have put together a template below which tenants could use as a starting point in preparing a letter to their landlords.
Of course, there is no “one size fits all” for this type of letter, the template will not suit all circumstances and it is recommended that legal advice should be obtained before using the template. The template is not intended to constitute legal advice.
Re. [Tenant’s name]: Lease of [Address of premises] – COVID-19
We are experiencing disruption and financial stress caused by the economic impacts of industry and government responses to the declared Coronavirus (COVID-19) pandemic and like many other businesses our turnover and cashflow have been severely affected.
As a result, we are unable to pay the full rent due under our Lease with you, and would like to explore the possibility of reducing our obligations under the Lease as a temporary measure until normal business activities are restored.
To give you an idea of the financial impact COVID-19 has had on our business, we enclose copies of the following: [Obtain legal and financial advice in this regard. Possible documents to consider: Profit and loss statement for the last 12 months; cash flow statement over last 12 months; budget for the next 6 months; report from our accountants; bank statements over the last 12 months; BAS returns since 1 April 2019]
We therefore respectfully request that with effect from 29 March 2020, during the rest of the COVID-19 pandemic period and for a subsequent reasonable recovery period (at least until 29 September 2020) the following terms apply:
A rent reduction of $##[Seek legal and financial advice] per month will apply, of which [Seek legal and financial advice]##% will be waived and the balance of which will be deferred. Even when things get back to normal, given our pre-COVID net profit figures, we expect that will have very limited ability to repay deferred rent.
Payment of rental deferrals will be amortised over the [##balance of the lease term / a period from ## to ##] (subject to any extensions prescribed by the regulations, e.g. if there is a second wave of COVID-19). [Seek legal and financial advice. Make sure you are reasonably expected to be able to meet this obligation e.g. prepare budgets and models. Check with your accountant if necessary]
No fees, charges or other interest charges will be raised in respect of rent deferrals.
There will be a waiver of all expenses and outgoings payable by us (if any) as tenant under the Lease.
We will have [Seek legal and financial advice] ## further options to extend the Lease on existing Lease terms for a period of [Seek legal and financial advice. Consider asking for a number of short terms] ## years each, in order to give us additional time to trade and the means to service our debts during the recovery period after the COVID-19 pandemic concludes.
We are authorised to reduce opening hours and at our discretion to cease trading, and you will not apply any levy or penalties in relation to any such reduction or cessation.
Once the terms of a temporary arrangement have been reached, a Deed of Variation of Lease should be entered into between us.
We understand that the Victorian Parliament issued regulations on 1 May 2020, known as COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations) to implement temporary measures to apply to tenants and landlords under leases to mitigate the effect of measures taken in response to the COVID-19 pandemic and to implement mechanisms to resolve disputes concerning leases.
Summaries of some of the requirements of the Regulations are set out in the schedule to this letter.
We confirm that the Regulations apply to us, as we are an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme, and have an annual turnover of $50 million or less (and have suffered disruption and financial stress caused by the economic impacts of industry and government responses to COVID-19).
Our lease is an “eligible lease” and the lease is not excluded from the operation of the Regulations by section 13(3) of the COVID-19 Omnibus (Emergency Measures) Act 2020 (Act). [Seek legal and financial advice]
We provide the following information that evidences that we qualify for, and are a participant in the Jobkeeper scheme: [Seek legal and financial advice. E.g. letter from accountant or a copy of the Business Enrolment for JobKeeper Wage Subsidy ATO receipt received by the tenant after their application for JobKeeper is accepted by the ATO].
Information from Landlord
The Regulations require the landlord and tenant to cooperate and act reasonably and in good faith in all discussions and actions associated with matters to which the Regulations apply. We therefore request that you provide us with the following details and documents:
- Details of any reduction in statutory charges (e.g. land tax, council rates), insurance or other outgoings which you have received or will receive in connection with COVID-19.
Details of any loan repayment deferrals or other concessions provided by a financial institution as part of the Australian Bankers Association’s COVID-19 response, or any other case-by-case deferral of loan repayments offered to landlords.
The following documents in relation to your financial ability to offer rent relief: [Obtain legal and financial advice in this regard. Possible documents to consider: Profit and loss statement for the last 12 months; cash flow statement over last 12 months; budget for the next 6 months; report from our accountants; bank statements over the last 12 months; BAS returns since 1 April 2019].
We look forward to working together with you to arrive at a mutually acceptable arrangement.
[Your position, e.g. Director]
Summaries of some of the requirements of the Regulations for you to consider are as follows:
A tenant is not in breach of the lease if they do not pay rent in full during the period from 29 March 2020 to 29 September 2020 () if they meet the requirements of the Regulations. A landlord must not evict or attempt to evict a tenant for a failure to pay rent during the Relevant Period. Penalty: 20 penalty units.
On receipt of a tenant's written request (such as this letter) which conforms with the Regulations, a landlord must offer rent relief to the tenant under a lease within (a) 14 days after receiving that request; or (b) a different 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 the lease and (a) relate to up to 100% of the rent payable under the lease during the Relevant Period; and (b) provide that no less than 50% of the rent relief offered must be in the form of a waiver of rent, unless a landlord and a tenant otherwise agree in writing; and (c) apply to the Relevant Period; and (d) take into account—
the reduction in a tenant's turnover associated with the premises during the Relevant Period; and
any waiver given pursuant to regulation 14(2) (of any outgoing 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); and
whether a failure to offer sufficient rent relief would compromise a tenant's capacity to fulfil the tenant's ongoing obligations under the lease, including the payment of rent; and
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 to any outgoings charged, imposed or levied in relation to the premises.
Following receipt of a landlord's offer by a tenant, the tenant and the landlord must negotiate in good faith with a view to agreeing on the rent relief to apply during the Relevant Period.
Rent relief may be given effect by the landlord and tenant by (a) a variation to the lease; or (b) any other agreement between them that gives effect to the rent relief, either directly or indirectly.
A landlord must not increase the rent at any time during the Relevant Period, unless the landlord and the tenant agree in writing that the relevant regulation does not apply to their lease (and unless there is a retail lease that provides for rent to be determined by reference to the volume of trade of a tenant's business).
If the payment of any rent is deferred by variation of a lease or an agreement mentioned under regulation 10(6), the landlord must offer the tenant an extension to the term of their lease on the same terms and conditions that applied before the commencement of the Regulations. The extension offered must be equivalent to the period for which rent is deferred, unless the landlord and tenant agree in writing that the relevant regulation does not apply to their lease.
A landlord must consider waiving recovery of any outgoing 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 a tenant is not able to operate their business at the premises for any part of the Relevant Period, the landlord may cease to provide, or reduce provision of, any service at the premises (a) as is reasonable in the circumstances; and (b) in accordance with any reasonable request of the tenant.
If any outgoings charged, imposed or levied in relation to the premises are reduced (a) a landlord must not require a tenant to pay any amount in respect of that outgoing that is greater than a tenant's proportional share of the reduced outgoing payable under the lease; and (b) if a tenant has already paid to a landlord an amount greater than a tenant's proportional share of the reduced outgoing, the landlord must reimburse the excess amount to a tenant as soon as possible.
If any rent is deferred by agreement, unless the parties agree otherwise (a) a landlord must not request payment of any part of the deferred rent until the earlier of (i) expiry of the Relevant Period; and (ii) expiry of the term of the lease (before any extension as provided under regulation 13 or otherwise); and (b) a landlord and tenant must vary the lease or otherwise agree so that tenant must pay the deferred rent to the landlord amortised over the greater of (i) the balance of the term of the lease, including any extension to that term, as provided under regulation 13 or otherwise; and (ii) a period of no less than 24 months.
A landlord must not require a tenant to pay interest or any other fee or charge in relation to any payment of rent deferred by variation to the lease or an agreement mentioned under regulation 10(6).
A tenant is not in breach of the lease if, during the Relevant Period, they (a) reduce the opening hours of the business they carry out at the premises; or (b) close the premises and cease to carry out any business at the premises.A landlord must not evict or attempt to evict a tenant for reducing hours or ceasing business.Penalty: 20 penalty units.
A landlord must not re‑enter or otherwise recover, or attempt to re‑enter or otherwise recover, the premises under a lease if the tenant reduces hours or ceases business.Penalty: 20 penalty units.
A landlord must not have recourse, or attempt to have recourse, to any security relating the non-payment of rent under a lease by a tenant if the tenant reduces hours or ceases business.Penalty: 20 penalty units.