COVID-19 Update | Omnibus (Emer­gency Mea­sures) (Com­mer­cial Leas­es and Licences) Reg­u­la­tions | 5 May 2020

On 1 May 2020 Vic­to­ria passed the COVID-19 Omnibus (Emer­gency Mea­sures) (Com­mer­cial Leas­es and Licences) Reg­u­la­tions 2020 (Reg­u­la­tions) to imple­ment the mod­i­fi­ca­tion of laws relat­ing to cer­tain retail leas­es and non-retail com­mer­cial leas­es and licences.

Code not incorporated

Despite the Nation­al Cab­i­net Manda­to­ry Code of Con­duct — SME Com­mer­cial Leas­ing Prin­ci­ples dur­ing COVID-19 (Code) adopt­ed by Nation­al Cab­i­net on 7 April 2020, the Act and the Reg­u­la­tion do not incor­po­rate or refer to the Code.

This approach dif­fers from the Retail and Oth­er Com­mer­cial Leas­es (COVID-19) Reg­u­la­tion 2020 passed in New South Wales which imple­ment­ed the gen­er­al prin­ci­ples in the Code.

Sum­ma­ry of Regulation

What does it do?

The objec­tive of the Reg­u­la­tion is to give effect to the Act to:

• pro­hib­it and reg­u­late the usu­al enforce­ment rights of land­lords dur­ing the COVID-19 pan­dem­ic peri­od; and
• require land­lords and ten­ants to rene­go­ti­ate the rent and oth­er terms of eli­gi­ble leas­es in good faith before any enforce­ment action can be commenced.

When does it apply?

The Reg­u­la­tions were made on 1 May 2020 and will apply for a six month peri­od ret­ro­spec­tive­ly from 29 March 2020 to 29 Sep­tem­ber 2020 (Rel­e­vant Peri­od).

As the Reg­u­la­tions apply ret­ro­spec­tive­ly, they do not apply to an eli­gi­ble lease entered into or which came into effect after 29 March 2020. This means the Reg­u­la­tions would not cap­ture a lease which comes into exis­tence as a result of an exer­cise of an option to renew an exist­ing lease.

What is an eli­gi­ble lease?

Under the Act, an eli­gi­ble lease means a retail lease under the Retail Leas­es Act 2003 (Vic) or non-retail com­mer­cial lease or licence:

• that is in effect on 29 March 2020 under which the premis­es are sole­ly or pre­dom­i­nant­ly used for the pur­pose of car­ry­ing on a busi­ness at the premis­es, under which the ten­ant; and
• under which the ten­ant is:
  • is a SME enti­ty; and
  • qual­i­fies for or is par­tic­i­pat­ing in the Job­Keep­er scheme.

The Reg­u­la­tions do not apply to a ten­ant who is part of a relat­ed enti­ty with an aggre­gate turnover in excess of $50M.

The Reg­u­la­tions specif­i­cal­ly excludes any lease or licence under which the premis­es are whol­ly or pre­dom­i­nant­ly used for agri­cul­tur­al, pas­toral, hor­ti­cul­tur­al, graz­ing or farm­ing operations.

What pro­hi­bi­tions and restric­tions apply?

Dur­ing the Rel­e­vant Peri­od every eli­gi­ble lease is tak­en to have the fol­low­ing provisions:

• Work coop­er­a­tive­ly – every land­lord and ten­ant must act in good faith, coop­er­ate and act rea­son­ably to imple­ment the intent of the Regulations.
  
• No breach – the ten­ant under an eli­gi­ble lease is not in breach for:
  • not pay­ing rent; or
  • reduc­ing the open­ing hours or ceas­es to oper­ate the busi­ness at the premises.
    
• No rent increase – no increase in the rent payable will apply unless:
  • the land­lord and ten­ant agree in writ­ing, or 
  • the increase relates to turnover rent.

• Exten­sion of term – if the pay­ment of rent is deferred by agree­ment between the land­lord and ten­ant, the land­lord must offer the ten­ant an exten­sion of the term for a peri­od equiv­a­lent to the peri­od for which the rent is deferred, unless the land­lord and ten­ant oth­er­wise agree in writing.
  
• Recov­er of out­go­ings or expens­es – the land­lord must con­sid­er waiv­ing recov­ery of any out­go­ings or oth­er expens­es if the ten­ant is not able to oper­ate their busi­ness at the premises.
  
• Reduc­tion in outgoings – the land­lord must pass on any reduc­tion of any out­go­ings to the ten­ant and must reim­burse to the ten­ant any excess amount already paid for the outgoing.
  
• Pay­ment of deferred rent – the land­lord must not request pay­ment of any part of the deferred rent until the ear­li­er of:
  • 30 Sep­tem­ber 2020; and
  • the expiry of the term, and the deferred rent must be amor­tised over the greater of the bal­ance of the term and at least 24 months.

• No fees, inter­est or charges – the land­lord must not impose any fee, inter­est or charge in rela­tion to the pay­ment of deferred rent.
  
• Con­fi­den­tial­i­ty – except as per­mit­ted under the Reg­u­la­tions, the land­lord and ten­ant must not divulge or com­mu­ni­cate any per­son­al infor­ma­tion or infor­ma­tion relat­ing to busi­ness process­es or finan­cial information.

What a land­lord can­not do?

Dur­ing the Rel­e­vant Peri­od the land­lord must not take the fol­low­ing action under an eli­gi­ble lease for non pay­ment of rent if the ten­ant requests rent relief from the land­lord and sat­is­fies some evi­den­tiary requirements:

• evict or attempt to evict a tenant;
• re-enter or oth­er­wise recov­er, or attempt to re-enter or oth­er­wise recov­er, the premises;
• have recourse or attempt to have recourse to any security

Rent relief

Dur­ing the Rel­e­vant Peri­od a ten­ant under an eli­gi­ble relief is enti­tled to request rent relief from the landlord.

The ten­an­t’s request for rent relief must be in writ­ing and be sup­port­ed by:

• a state­ment that the lease is an eli­gi­ble lease; and
• infor­ma­tion evi­denc­ing that: 
  • the ten­ant is an SME enti­ty; and
  • qual­i­fies for and is a par­tic­i­pant in the Job­Keep­er scheme.

The land­lord must offer the ten­ant rent relief with­in 14 days of receiv­ing the ten­an­t’s request or such oth­er time frame as agreed between the land­lord or ten­ant in writing.

The land­lord must offer rent relief to the ten­ant for the Rel­e­vant Peri­od which:

• relates to up to 100% of the rent payable; and
• pro­vides for a waiv­er of no less than 50% of the rent; and
• takes into account:
  • the ten­an­t’s reduc­tion in turnover;
  • a waiv­er of out­go­ings or any oth­er amount payable;
  • whether a fail­ure to offer suf­fi­cient rent com­pris­es the ten­an­t’s abil­i­ty to ful­fil its oblig­a­tions under the lease; and
  • the land­lord’s finan­cial abil­i­ty to offer the rent relief; and
  • any reduc­tion to any out­go­ings charged, levied or imposed 

The land­lord and ten­ant must nego­ti­ate the land­lord’s offer of rent relief in good faith.

The rent relief agreed between the land­lord and ten­ant can be giv­en effect by:

• vari­a­tion of the eli­gi­ble lease; or
• any oth­er agree­ment that gives effect to the rent relief, either direct­ly or indirectly.

The Reg­u­la­tions do not pre­vent the ten­ant from request­ing fur­ther rent relief dur­ing the Rel­e­vant Period.

Dis­pute resolution

The land­lord and ten­ant may refer any dis­pute to the Small Busi­ness Com­mis­sion for mediation.

Despite the medi­a­tion process not being manda­to­ry, pro­ceed­ings can not be com­menced in the Vic­to­ri­an Civ­il and Admin­is­tra­tive Tri­bunal or any court of com­pe­tent juris­dic­tion unless the Small Busi­ness Com­mis­sion has cer­ti­fied that the medi­a­tion has failed or is unlike­ly to resolve the dis­pute or oth­er­wise with leave of the Supreme Court.

Kind regards

Mary Digiglio