On 1 May 2020, the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations) came into effect, bringing into law the principles of the Federal Government's National Leasing Code of Conduct in Victoria.
Here are some Q&A's arising from the Regulations:
Am I entitled to rent relief?
To qualify for rent relief under the Regulations the lease must be an 'eligible' lease (tenant turnover less than $50 million and at least 30% decline in trade) and the tenant must be participating in the JobKeeper Scheme.
The Regulations do not apply to farming and agricultural leases and licences.
What rent relief must be provided?
Rent relief must be based on all the circumstances of the eligible lease and must take into account the reduction of the tenant's turnover during the relevant period, any waiver of outgoings provided by the landlord, the tenant's overall financial position, the landlord's financial ability to provide relief (including any mortgage relief) and any reduction in property outgoings afforded to the landlord.
Relief must be at least 50% up front waiver – unless agreed otherwise by the landlord and tenant.
What period does the rent relief apply to?
Rent relief must be provided for the entire period from 29 March 2020 to 29 September 2020 (Relevant Period). This obviously poses some difficult decisions as there is so much uncertainty regarding the duration of restrictions and the subsequent impact on a tenant's business.
If there is a material change in the tenant's financial circumstances during this period, the tenant may request further rent relief. Importantly, a landlord is not entitled to commence re-negotiations if the tenant's financial position becomes more favourable during the Relevant Period.
What restrictions do the Regulations place on a landlord's rights under the lease?
A landlord of an eligible lease cannot:
- terminate a lease, evict a tenant or enforce security (i.e. bank guarantee) for non-payment of rent by a tenant, provided the tenant continues to comply with the Regulations and is paying the reduced rental for the Relevant Period;
- increase rent for the Relevant Period; and
- charge any interest or penalties on deferred rent payments.
What information must the tenant provide?
An eligible tenant must request rent relief from the landlord and must provide:
- a statement that the lease is an eligible lease and is not excluded by section 13 of the Act– being a lease or licence that is in effect as at 29 March 2020 and the tenant is an SME entity (annual turnover less than $50 million); and
- information that the tenant is a SME entity AND is participating in the JobKeeper scheme.
All information provided is confidential, however the landlord may give that information to the Commissioner of State Revenue as part of land tax relief application.
Must relief for outgoings be provided as well?
Any reduction a landlord receives in outgoings (such as land tax) must be passed on to those tenants that contribute to the outgoing in proportion to the respective tenant's contribution.
If a tenant does not contribute to that outgoing (i.e. a retail tenant not contributing to land tax) the landlord does not have to pass on that saving to that tenant.
What happens if the landlord and tenant cannot agree on rent relief
All disputes arising under an eligible lease in respect to the Regulations may be referred in writing by either party to the Small Business Commission for mediation.
Mediation must not be used to prolong negotiations and if mediation does not resolve the dispute it may be referred to VCAT.
While the above represents a snapshot of queries we are fielding, there will no doubt be other queries arising from the Regulations as each tenancy is different.
If we can be of assistance to you in navigating these Regulations and your tenancy, please contact Richard Skopal.