The information contained in this article is current as at 24 June 2020. To view information on the latest coronavirus updates, please visit our COVID-19 Updates, Webinars and Resources page or alternatively contact us on (03) 9560 2922 for further information on any recent changes.
We have previously discussed the leasing principles issued in the Federal Government’s Mandatory Code of Conduct for Commercial Tenancies (“Code”) in our article COVID-19 & Leasing – National Cabinet Mandatory Code of Conduct.
The Code recently came into effect in Victoria through the Commercial Tenancy Relief Scheme (“Scheme”). The Scheme is governed by the COVID-19 Omnibus (Emergency Measures) Act 2020 (“Act”) and the (Commercial Leases and Licences) Regulations 2020 (“Regulations”). The Regulations, among other things, establishes the process for tenants to obtain rent relief.
This article focuses on the rent relief process established by these Regulations.
Who is eligible?
A tenant that has an eligible lease is entitled to have rent relief for the period from 29 March 2020 until 29 September 2020 (“relevant period”). The lease is eligible, as defined under the Act if:
- The retail lease, commercial lease or commercial licence was in operation as of 29 March 2020,
- The tenant is a SME entity (“SME”) with an annual turnover of less than $50 million, and
- The tenant is participating in the JobKeeper Scheme.
What is the process?
Landlords and Tenants are obliged to act reasonably and in good faith when discussing and negotiating rent relief, with the aim of reaching an agreement for the relevant period.
Pursuant to the Regulations, the tenant must first make a written request to the landlord for rent relief. Their request must be accompanied by:
- a statement that the lease is an eligible lease, and
- information and evidence that they are an SME and a participant in the JobKeeper scheme.
Both the Victorian Small Business Commissioner (“VSBC”) and the Victorian State Government (“VSG”) have issued guidance about the information tenants are expected to provide. A tenant should provide further information if they believe it will assist their request for rent relief.
After the landlord receives the request for rent relief, they must offer rent relief to the tenant within 14 days, or longer by agreement. A rent relief offer must take into account all the circumstances including:
- the decline in the tenant’s turnover associated with the leased premises during the relevant period, and
- the landlord’s financial ability to offer rent relief.
For example, the landlord receiving loan repayment relief is relevant.
The landlord’s offer must:
- relate up to 100% of the rent payable under the lease (noting the VSG policy guidance states that the relief should be in proportion to tenant’s decline in turnover),
- have at least 50% of the rent relief offered in the form of a rent waiver. For example, an offer of 50% rent relief could have a 25% rent waiver and 25% rent deferral, and
- be during the relevant period.
Where the relief offer includes rent deferral, a landlord must offer to extend the lease term equivalent to the period the rent is deferred. For example, if rent is deferred for 6 months, the lease term would be extended by 6 months. The deferred rent would be repaid over the remaining lease term (including any extension) or 24 months, whichever is greater. The parties can agree on how deferred rent is to be repaid.
The landlord must also genuinely consider waiving recovery of outgoings or other expenses payable by the tenant for any part of the relevant period that a tenant is not able to operate their business at the leased premises.
Any reduction of outgoings received by the landlord must be passed on proportionally to the tenant if they are payable under the lease. It is important to note that the State Revenue Office has recently introduced land tax relief which is available to eligible landlords.
What happens if the parties reach an agreement?
Whilst not a requirement in the Regulations, any rent relief agreement should be documented in a deed of variation of lease, to clearly set out the agreed terms and prevent future disputes. If the lease includes Guarantor(s), they should also be a party to the variation of lease.
Can tenants get any further rent relief?
A tenant may make a further request for additional rent relief under the Regulations if their financial circumstances deteriorate. The landlord must follow the same process as outlined above for offering initial rent relief however they need not offer another 50% rent relief waiver with respect to any further rent relief offer.
What if the parties cannot reach agreement?
The Regulations allow for the eligible lease dispute to be referred by either party to the VSBC for a mediation. If the dispute cannot be resolved at mediation, either party can apply to the Victorian Civil Administrative Tribunal or the Supreme Court of Victoria to determine the dispute.
Where can I find further details?
The Full Regulations can be found here.
As Accredited Property Law Specialists, we are well equipped to advise you of your rights and obligations. Should you have any questions on how the Regulations may impact you, or if you need assistance in negotiating your position in a lease, please contact us on 1300 205 506.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
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For further information contact
Amy is a Legal Practitioner at Sharrock Pitman Legal.
She deals with Property Law. For further information, contact Amy Landberg on her direct line (03) 8561 3327.