LEASING DURING COVID-19
SME COVID-19 LEASING REGULATIONS
Last updated: 4 May 2020
The Victorian Parliament passed regulations on 1 May 2020 to implement the National Cabinet Code on COVID-19 Leasing. We consider the regulations in the article below.
The regulations are designed to implement temporary measures to apply to tenants and landlords in Victoria under eligible leases to mitigate the effect of measures taken in response to the COVID-19 pandemic and to implement mechanisms to resolve disputes concerning eligible leases.
If tenants want to obtain relief, they must send a
letter to their landlords which contains information prescribed by the regulations. These requirements go beyond the requirements of the National Cabinet Code. It is therefore important that tenants and landlords who are potentially impacted by the regulations seek legal advice. A template which tenants could use as a starting point in preparing a letter to their landlords can be found here.
The regulations broadly apply to both retail leases and non-retail commercial leases (and licences) where:
the tenant’s annual turnover is not likely to exceed $50 million for this year (or exceeded that amount last financial year); and
the tenant is a valid participant in the Jobkeeper [https://www.ato.gov.au/general/JobKeeper-Payment/?=Redirected_URL] programme.
An outline of some of the requirements of the Regulations for you to consider are as follows:
Non-payment of rent, no eviction. 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 (Relevant Period) 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.
Landlord must make an offer. On receipt of a tenant's written request which conforms with the Regulations, a landlord must offer rent relief to the tenant under a lease within 14 days after receiving that request (or other time frame agreed with the tenant in writing).
Factors. A landlord's offer of rent relief must be based on all the circumstances of the lease and:
relate to up to 100% of the rent payable under the lease during the Relevant Period; and
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
apply to the Relevant Period; and
take into account—(a) the reduction in a tenant's turnover associated with the premises during the Relevant Period; (b) 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); (c) 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; (d) 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 (e) any reduction to any outgoings charged, imposed or levied in relation to the premises.
Good faith negotiations. 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.
No rent increases. 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. (This prohibition on rent increases does not apply to a retail lease where rent is determined by reference to the tenant’s turnover / volume of trade).
Extend lease term. If the payment of any rent is deferred, 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.
Waive outgoings. 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.
Pass on, reimburse, outgoings savings. 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.
Deferral of rent. If any rent is deferred by agreement, unless the parties agree otherwise:
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
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.
No interest of late payment fees. 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).
Can close or reduce hours. 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.
No eviction for closing/reducing hours. 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.
Security bond. 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.
Documentation. Rent relief may be given effect by the landlord and tenant by a variation to the lease or any other agreement between them that gives effect to the rent relief, either directly or indirectly.
RETAIL LEASES ACT
For information in the rights and obligations of tenants and landlords in relation to retail leases, see our article here.
ASSISTANCE AND ADVICE
If you would like our assistance or advice in relation to a Lease, please contact Rod Stumbles here.
Footnotes: RETURN TO TOP
1. The regulations are titled COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020.
2. The National Cabinet Code is titled National Cabinet Mandatory Code of Conduct - SME Commercial Leasing Principles During CovID-19.