New Coronavirus Regulations for Commercial Leases & Licences

The Victorian Government has published the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020. The Regulations reflect some but not all of the leasing principles in the National Cabinet Mandatory Code of Conduct.

The Regulations apply to “eligible leases” from 29 March 2020 until 29 September 2020 (referred to as the “relevant period”), and set out a process to be followed in relation to rent relief agreements and mediation if agreement cannot be reached. Claims may be issued in VCAT or the appropriate Court if the Small Business Commissioner’s Office has provided a certificate confirming mediation was unsuccessful, or if an urgent injunction is sought.

Eligible Leases
Are those commercial leases and licences:

(a) which are in effect when the Regulations were made; and
(b) under which the tenant is an SME entity with a turnover of less than $50 million; and
(c) under which the tenant is an employer which qualifies for and is a participant in the JobKeeper scheme.

The Regulations do not apply to the following excluded types of leases:

(a) agricultural and certain other similar farming, cultivation leases; and
(b) leases of which the tenant is part of a group of companies with an aggregate turnover in the most recent financial year of more than the prescribed amount of $50 million.

Turnover for a financial year is the total of the following that is earned in the year in the course of the business:

(a) the proceeds of sales of goods and/or services;
(b) commission income;
(c) repair and service income;
(d) rent, leasing and hiring income;
(e) government bounties and subsidies;
(f) interest, royalties and dividends;
(g) other operating income.

Main provisions of the Regulations
The Regulations state that a tenant under an eligible lease is not in breach of its lease if it doesn’t pay the required rent during the relevant period provided that the tenant complies with Regulations 10(1) to (5) or pays the rent due under any agreement reached with the landlord under the Regulations.

Regulations 10(1) to (5) provide as follows:

(a) The tenant may request rent relief from the landlord.
(b) The request must be in writing and include:

(i) A statement that the tenant’s lease is an eligible lease and the lease is not excluded from the operation of the Regulations under section 13(3) of the Act; and
(ii) Information that evidences that the tenant is an SME entity and qualifies for and is a participant in the JobKeeper scheme.

(c) The landlord must offer rent relief within 14 days of receiving the tenant’s request or such other different timeframe agreed in writing between the parties.
(d) The landlord’s offer of rent relief must be based on all of the circumstances of the lease [our emphasis] and:

(i) Relate to up to 100% of the rent payable during the relevant period;
(ii) Provide that no less than 50% of the rent relief offered is in the form of a waiver of rent (unless both parties agree otherwise in writing);
(iii) Apply during the relevant period (29 March to 29 September 2020);
(iv) Take into account each of the following:

• The reduction in the tenant’s turnover associated with the premises during the relevant period;
• Any waiver of outgoings given under Regulation 14(2) (Reg. 14(2) provides that the landlord must consider waiving outgoings or other expenses during any part of the relevant period the tenant is not able to operate is business at the premises);
• Whether a failure to offer sufficient rent relief would compromise a tenant’s capacity to fulfil its ongoing obligations under the lease including payment of rent;
• The landlord’s financial ability to offer rent relief, including relief provided to the landlord by its bank in response to the coronavirus pandemic;
• Any reduction to outgoings charged imposed or levied in relation to the premises.

(e) Following receipt of the landlord’s offer, both parties must negotiate in good faith in relation to rent relief during the relevant period.

If the financial circumstances of a tenant under an eligible lease materially change after a rent relief agreement or variation is made, the tenant may make a further request to the landlord for rent relief and the parties must then follow the same procedure.

Regardless of whether rent relief is agreed, a landlord under an eligible lease must not increase the rent at any time during the relevant period unless both parties agree in writing (unless rent is determined under the lease by reference to turnover).

If payment of any rent is deferred by agreement between the parties:

(a) the landlord must offer the tenant an extension to the term of the lease (on the same terms as prior to the commencement of the Regulations). The extension to the lease term must be for the same period as the rent is deferred, unless the parties agree otherwise in writing; and
(b) the 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 (disregarding any extension of the term above); and

(c) the 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 granted above) and
(ii) no less than 24 months.

(d) No interest or other fee or charge is payable by the tenant in relation to any payment of deferred rent.

Author: Cathy Drake