Introduction On 1 May 2020, the Governor of Victoria made the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (Regulations), pursuant to the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) (COVID Act). The Regulations introduce new rules for commercial leases and licences which fall under the definition of ‘eligible leases’ in the COVID Act (as discussed in our article of 24 April 2020) and are the legislation under which the National Cabinet’s Mandatory Code is implemented into law in Victoria. To be clear, the Regulations do not exactly mirror the Code and while the Code will be seen as an important and perhaps persuasive document, the Regulations are law in Victoria. The Regulations retrospectively came into operation on 29 March 2020 and expire on 29 September 2020 and will have a significant impact on leasing and related law for that period. Preliminary matters The Regulations only apply to ‘eligible leases’ and incorporate a list of leases which are specifically excluded from the COVID Act (these broadly include agricultural and farming leases). Tenants who are either ‘connected’ with or an ‘affiliate’ of (each as defined in sections 328-125 and 328-130 of the Income Tax Assessment Act 1997 (Cth) respectively) an entity where the aggregate turnover of all connected or affiliated entities exceeds $50 million are also excluded. The Regulations, importantly, incorporate into every eligible lease a requirement to cooperate and act reasonably and in good faith in relation to any matter touched upon by the Regulations. Rent relief and related matters The Regulations affect a landlord’s right to evict or claim from security where a tenant has either applied for or been granted rent relief. The wording of the Regulations appears to suggest that the landlord’s rights may be limited even to matters not relating to rent (for example, other tenant obligations) if the tenant has applied for or been granted rent relief in accordance with the Regulations. The following process is set out for seeking rent relief: A tenant needs to request rent relief from the landlord, and the request must be accompanied by a statement confirming the lease is an eligible lease and providing evidence that the tenant is an SME entity and qualifies for and is a participant in the JobKeeper scheme; The landlord then has 14 days to respond (unless the parties agree to a different time period); The landlord must offer rent relief based on all of the circumstances (which must be at least 50% rent waiver) and must take into account: the reduction in the tenant’s turnover; any associated waiver of outgoings; whether failure to give rent relief would compromise the tenant’s ongoing capacity to fulfil its obligations; the landlord’s financial ability to offer rent relief including any relief provided by its lenders; and any reduction in outgoings levied on the property; The tenant and landlord must then negotiate in good faith in relation to the landlord’s offer; The landlord and the tenant are to effect the agreement by a variation to the lease (or another agreement) giving effect to the rent relief; and Where the landlord and tenant have already agreed on rent relief and the tenant’s circumstances then change, the tenant can request further rent relief, but the landlord’s obligation to offer at least 50% as a rent waiver no longer applies. Term extension Where a landlord and tenant agree to a rent deferral, the landlord must offer the tenant an extension to the lease term for an equivalent period to the period for which rent is deferred (unless the parties agree otherwise). Repayment Where a rent deferral is granted: A landlord cannot require the tenant to start paying the deferred rent until the later of 29 September 2020 and the expiry of the lease (not including any extension agreed under the Regulations) and The lease must be varied to grant the tenant the balance of the lease term (as extended under the Regulations) or 24 months( whichever is greater) in order to pay the deferred rent, unless the parties agree to exclude this requirement A landlord must not charge any fee or interest on any deferred rent or other agreement for rent relief. Rent increases The Regulations also prohibit rent increases (outside of increases based on turnover) being implemented during the applicability of the Regulations (unless the parties agree otherwise). Outgoings A landlord must consider (but does not need to grant) a waiver of outgoings for any period that the tenant is not able to operate their business at the premises. The landlord may cease or reduce the provision of services as is reasonable in the circumstancesIf the landlord receives a reduction in its outgoings expenses, then it must pass this on to a tenant where the tenant pays outgoings. This will be relevant to land tax recovery for non-retail leases where the landlord receives a land tax reduction. Trading It is not a breach of a lease if a tenant reduces its trading hours or even closes for trading. Again, the wording of the Regulations appears to suggest that the landlord’s rights to evict may be limited even to matters not relating to trading (for example, other tenant obligations) if the tenant has reduced its trading hours or closed for trading. Confidentiality Landlords and tenants are prohibited from divulging personal and other business information obtained under or through the operation of the Regulations except in certain circumstances such as to that party’s professional advisers and financiers, as permitted by law, or where required for proceedings. There is specific permission for landlords to provide the information accompanying a tenant’s application for rent relief to the State Revenue Office for the purpose of seeking tax relief. Dispute resolution A landlord or a tenant may apply to the Small Business Commissioner (SBC) to mediate a dispute under the Regulations. Interestingly a mediator is allowed to meet with the parties privately without their solicitors present. While VCAT is granted the same jurisdiction as contained in the Retail Leases Act 2003 (Vic) to determine disputes which fail to resolve at the SBC, the provisions in the Retail Leases Act preventing other courts from hearing disputes do not apply (to non-retail leases). In particular, the Supreme Court may hear proceedings where the SBC has certified that mediation has failed or where a party has sought and been granted leave. And VCAT or any court may hear applications for injunctions. Conclusion The Regulations introduce substantial changes to the law for ‘eligible leases’ for the period from 29 March 2020 to 29 September 2020. While flowing from the National Cabinet Compulsory Code, the Regulations stand alone in their application and will be the primary reference point for landlords and tenants seeking to understand their rights in Victoria. The above content is commentary rather than legal advice and was prepared on the basis of applicable legislation, government programs and initiatives that were in place as of the date of publication. Given the ongoing evolution of both the COVID-19 pandemic and frequent consequential changes to the various laws and programs within all Australian states and territories, readers should seek legal advice on the current situation as applicable to their specific circumstances before taking any action in relation to the above.
