Commercial lease regulations: Victoria introduces new amendments
The Victorian Government has introduced the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licenses) Miscellaneous Amendments Regulations 2020 which made substantial changes to the existing regulations, including:
- eligible leases;
- the time period for rent relief; and
- the types of rent relief
The newly consolidated COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 came into effect on 29 September 2020 and only apply to leases which were in effect on 29 March 2020. Note: Leases that were entered into or commenced after 29 March 2020 are ineligible.
Regulation 4A – eligible leases
The definition of an eligible lease has been amended to be a retail lease or a non-retail commercial lease or licence, where the tenant:
- is a SME entity (as defined in the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Rules 2020); and
- is entitled to participate in the JobKeeper scheme.
The Amending Regulations now make it clear that tenants do not have to be employers, reflecting the changes to JobKeeper, so that sole traders are now eligible.
Regulation 24B – where an agreement for rent relief is current and in place
Existing rent relief agreements which were finalised before 29 September 2020 will continue to apply even if the tenant no longer receives JobKeeper.
Regulation 24C – where negotiations are still on foot
If you are a tenant that made a request for rent relief under regulation 10 to your landlord and negotiations with your landlord have not yet been finalised, it is important to keep these on foot.
Active negotiations for rent relief will continue to be treated as eligible leases (therefore eligible for rent relief requests) even if the tenant becomes ineligible for JobKeeper before the rent relief arrangement is agreed.
Regulation 10 – extension of the relevant period
The relevant period has been extended until 31 December 2020. Therefore, rent relief arrangements can be negotiated until 31 December 2020, provided a tenant’s request complies with the amended process under regulation 10, which contains more stringent requirements for what documentation is required.
If you previously requested rent relief for the period before 29 September 2020, these negotiations should be kept on foot so that you can obtain relief for the period in question.
However, if you believe you will require further relief after 29 September 2020, you must submit a new request. It is recommended that you make an urgent rent relief request as soon possible.
This new request must include all necessary information which is described under regulation 10(2):
- Statement from the tenant explaining:
- its lease is an eligible lease;
- the lease is not excluded because either:
- the lease is an agricultural lease;
- the tenant is a member of a prescribed group of entities where the aggregate turnover of the entities is more than $50 million;
- there is a relationship or connection between tenant and another entity and the aggregate turnover is more than $50 million; or
- an entity has control or influence through holding a prescribed interest, right or power relating to decisions about ownership, management or affairs of a tenant under the lease that is a body corporate; and
- setting out the decline in turnover (expressed as a whole %) connected with the premises only, not other premises.
- Information evidencing the following:
- the tenant is a SME entity (that its turnover or the aggregate turnover of any connected or affiliate entities is less than $50 million);
- the tenant is receiving JobKeeper; and
- information evidencing the tenant’s decline in turnover through at least one of the following:
- BAS statements;
- extract from accounting records;
- statements issued by a bank or other ADI regarding the tenant’s account; or
- a statement from a practising accountant.
Any offer made by your landlord will only apply from the date of a rent relief request that is compliant. For example, if you sought rent relief on 1 October 2020 but this request did not include the necessary information, the request is not compliant with regulation 10(2). If you send through the rest of the information on 10 October 2020 the landlord is only obliged to offer rent support from 10 October 2020.
Regulation 11 supports this by allowing tenants with existing arrangements to negotiate subsequent rent relief if:
- there has been a material change in the financial circumstances of the tenant; or
- if the previous rent relief agreement was made prior to 29 September 2020:
- the rent relief is not proportional to the decline in the tenant’s turnover; and
- the agreement did not apply until the end of relevant period which is now 31 December 2020.
This will allow tenants to request more rent relief, but only from the date a new and compliant request is made, retrospective application is not possible.
The test to apply in calculating the decline in turnover follows the actual decline in turnover test under the JobKeeper rules. See our article here for that definition.
What rent relief can landlords offer?
Landlords can no longer take into account their own financial position when considering the appropriate rent relief. They must also respond within 14 days to any rent relief requests.
Landlords must consider the following:
- At least 50% of the rent relief offered must be a waiver;
- The relief must be at least proportional to the tenant’s decline in turnover only connected to the leased premises;
- Waiver or reductions of outgoings; and
- Whether failure to offer relief could lead to tenant being unable to meet their obligations under the lease.
Under regulation 16, no landlord can recover any deferred payment until the end of the relevant period which is 31 December 2020, even if there are existing agreements for recovery before that date.
Moratorium on terminations
The regulations have clearly defined when landlords can terminate leases. The prohibition on terminating leases is only applicable if one of the events below occur:
- Failure to pay rent;
- Failure to pay outgoings; or
- Reduction or cessation of trade.
This is the case if these events occurred during the relevant period and the tenant has an eligible lease.
Additional VSBC powers
Regulation 20A certificates state whether landlord failed to respond to dispute notice or that they failed to engage in mediation in good faith.
Tenants can now apply for the Victorian Small Business Commissioner (Commissioner) to make a binding order in the tenant’s favour in relation to their eligible lease dispute once they have received a regulation 20A certificate. Interestingly there are no hearings for binding orders, all decisions are made on the papers with both the tenant and landlords providing written submissions (time limit of 10 days to respond for landlords).
The Commissioner can only make a binding order if:
- Landlord has been provided with notice;
- A VCAT or court proceeding relating to the lease has not been started;
- The tenant’s application is compliance; and
- It is fair and reasonable to make the order.
Types of binding orders include:
- Direction to give or agree to waive part or all of rent payable from date of a compliant request; or
- Defer payment of part of rent payable from date of request, which must be paid back either over balance of lease term or 24 months.
Parties can apply to amend or withdraw binding orders. Parties can also apply to VCAT to review Commissioner decisions and force parties to comply with binding orders.
Have a question or need advice?
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Contact Sotheary Bryant by email or on 0403 625 524.
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