CORONAVIRUS COVID 19 – Rent Relief: What it Means for Tenants and Landlords of Commercial Leases
The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licenses) Regulations 2020 (Vic) was published on 1 May 2020 (theRegulations).
The Regulations are made under the COVID-19 Omnibus (Emergency Measures Act 2020 (Vic) which follows the National Cabinet Mandatory Code of Conduct. The Regulations carry retrospective effect and are taken to have come into operation on 29th March 2020.
The purpose of the Regulations is to implement temporary measures that apply to tenants and landlords under certain eligible leases in order to mitigate the effect of the COVID-19 Pandemic.
COVID-19 Rent Relief Eligibility Criteria
The Regulations are applicable for eligible leases and tenants that meet the following criteria:
Lease: an eligible lease does not include leases under which the premises may be used wholly or predominantly for agricultural or farming purposes. Most retail and commercial leases are eligible in this regard.
Tenant: the tenant, assessed on a group level, must be a Small and Medium Enterprise with a turnover of less than $50 million. The tenant, being an employer, must also qualify for and participates in the JobKeeper Scheme.
Franchisees which pay an outlet licence fee to a franchisor may be eligible, but a franchisor with turnover of more than $50 million is not eligible.
Relevant Period: the relief is available between 29th March – 29th September 2020.
What form of relief can be provided?
Under the Regulations, the landlord is required to respond to the tenant’s written request with an offer of rent relief within 14 days. The offer can take the form of a waiver, remission, reduction and deferral of rent. Importantly, 50% of the relief must be provided by way of a waiver.
Steps the tenant must take
the tenant must submit a written request to the landlord with the following information:
the tenant would like to seek rent relief under the Regulations.
the tenant is qualified and participates in JobKeeper.
the tenant is a small and Medium Enterprise with a turnover of less than $50 million.
Steps the landlord must take
On receipt of the request for rent relief:
the landlord must respond within 14 days with an offer unless parties have otherwise agreed on another time frame.
50% of the rent relief must be offered by way of waiver unless the parties otherwise agree in writing.
relief can be offered in proportionate to the reduction in turnover of the tenant but it does not have to be;
The landlord should take into account of a range of factors in formulating the offer including:
Reduction in tenant's turnover.
Any waiver of rent given.
Whether failure to offer rent relief would compromise the tenant’s capacity to fulfil the tenant’s obligations under the lease (presumably this has to do with tenant’s financial capacity).
Landlord’s financial capacity and any relief or assistance available. For instance, deferral of mortgage payments offered by the landlord’s bank.
Reduction in outgoings or charges levied on the premises.
If any part of the relief is offered by way of deferral, the landlord must not require the tenant to pay any deferred rent until after the earlier of:
29th September 2020, or,
the date on which the lease was due to expire before any extension of lease is provided.
Further, the landlord and the tenant must vary the lease or otherwise agree so that the tenant can pay the deferred rent over a period of at least 24 months. If the deferred period is longer than the remaining term of the lease, then an extension of the lease must be offered by the landlord as well.
The tenant and the landlord are free to make other arrangements, but they must be evidenced in writing.
Obligation of the parties:
The landlord and the tenant must work cooperatively, act reasonably and in good faith. In addition, the landlord must not:
Increase the rent payable during the relevant period.
Evict a tenant or re-enter the premises under the eligible lease because the tenant has reduced opening hours or ceased trading during the relevant period.
The landlord must not take recourse or security relating the non-payment of rent because the tenant has reduced its business hours or ceased trading during the relevant period.
If the parties to an eligible lease cannot come to an agreement, the dispute may be referred to the Victorian Small Business Commission for mediation, and if the matter cannot be resolved at mediation VCAT (Victorian Civil and Administrative Tribunal) most likely has jurisdiction over the dispute.
Much of the operation of the Regulations is still unclear, for instance, if a business uses different entities to employ staff and rent premises, its eligibility for rent reduction might be affected because the tenant is not an employer. Further, self-employed people with no employees but a rented premise might not be eligible for rent relief. Further guidelines may be forthcoming but until then there are many questions still to be answered.
Please note the above should be construed as general advice only and may not be applicable for your circumstances. You should seek advice specific to your circumstances.
Barrett Walker can provide you with advice relating to any lease dispute you might have, or if you have any queries as to your eligibility for the JobKeeper payment or any other government assistance, please feel free to contact our team for support or a free consultation on 03 9428 1033.