n 29 September 2020, the Victorian Government released the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations. This amends the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations) which were released in May 2020 (discussed in our previous article here) and will (at this stage) expire on 31 December 2020.
Below is a summary of the key amendments that apply to landlords and tenants in Victoria.
The end date of the 'relevant period' during which rent relief must be provided has been extended from 29 September 2020 to 31 December 2020.
Tenants who have already made agreements with their landlords regarding rent relief may make further requests for the remainder of the relevant period (Reg. 11). Any further request must now follow the process set out in the amended Reg. 10.
Reg. 11(b) also permits tenants who have made agreements which do not comply with the new decline in turnover requirements (discussed further below) to go back and renegotiate those agreements for the whole of the relevant period.
What is an 'eligible lease'?
Recent amendments to the COVID-19 Omnibus (Emergency Measures) Act 2020 foreshadowed a change in the meaning of the phrase 'eligible lease'.
New Reg. 4A prescribes that an eligible lease is "a retail lease or a non-retail commercial lease or licence under which the tenant (a) is an SME entity and (b) is an entity entitled under ss 6, 11 or 12A of the JobKeeper rules to a JobKeeper payment".
Practically, this means that to hold an eligible lease a tenant must still be receiving JobKeeper payments, but the tenant does not need to be an employer.
The previous exceptions to holding an eligible lease (where the tenant is a member of a prescribed group or has a prescribed relationship or connection with another entity, plus a turnover of more than $50 million) still apply.
If a tenant ceases to be eligible to receive JobKeeper payments after 29 September 2020 but their agreement has already been reached regarding rent relief, Reg. 24B provides that Regs. 9, 12, 14, 15 and 18 will continue to apply to the tenant's lease. That is, it will remain an eligible lease.
If a tenant ceases to be eligible to receive JobKeeper payments before any agreement relating to rent relief has been reached, Reg. 24C provides that the tenant's lease will remain an eligible lease.
Moratorium on evictions
The circumstances in which a landlord is prohibited from terminating a tenant's lease under Regs. 9 and 18 have been clarified.
Amended Reg. 9 provides that a tenant will not be in breach of any provision of its lease that relates to the payment of rent or outgoings if it has failed to pay rent or outgoings during the relevant period, and requested for rent relief which complies with Reg. 10.
Amended Reg. 18 sets out that a tenant will not be in breach of any provision of its lease which relates to the opening hours of its business carried on at the premises if it reduces its opening hours or closes the business.
These clarifications are useful, as there was previously some debate as to whether a lease could be validly terminated for an unrelated breach if Reg. 18 applied.
Requests for rent relief
Amended Reg. 10(2) provides that a tenant who requests rent relief must, in addition to providing a statement that it holds an eligible lease and evidence of its status as an SME entity and participation in the JobKeeper scheme, now provide the following additional information to the landlord:
- a statement setting out the tenant's decline in turnover associated with the premises (and no other premises), expressed as a whole percentage and calculated in accordance with the "actual decline in turnover test" (as set out in section 8 of the JobKeeper Rules)
- information evidencing the decline in turnover, including at
least one of:
- extracts from the tenant's accounting records;
- Business Activity Statements relating to the relevant turnover test period;
- statements prepared by an authorised deposit-taking institution (ADI) in respect of the tenant's account; or
- a statement prepared by the tenant's practising accountant, and
- the receipt number issued by the ATO and the tenant's most recent notice to the ATO under the JobKeeper rules.
Upon receipt of the required information, the landlord must respond within 14 days or some other time agreed between the parties.
The landlord's offer of rent relief must be based on "all the circumstances of the eligible lease" and:
- relate to up to 100 per cent of the rent payable during the period commencing on the date of the tenant's request and ending on 31 December 2020
- provide that no less than 50 per cent of the rent relief must be in the form of a waiver, unless otherwise agreed in writing
- be, at a minimum, proportional to the decline in the tenant's turnover associated with the premises
- apply to the period starting on the date of the tenant's request and ending on 31 December 2020
- take into account any waiver or reduction in outgoings
- take into account whether any failure to offer sufficient relief would compromise a tenant's capacity to meet its ongoing obligations under the lease.
The ability of the landlord to take into account its financial position has been revoked.
New Reg. 10(4A) clarifies the position concerning gross leases and provides that if the rent charged to a tenant under an eligible lease includes outgoings, then the landlord must offer relief for the rent payable inclusive of outgoings.
Reg. 16 has been amended to provide that landlords cannot require payment of any deferred rent until 31 December 2020 (irrespective of whether the lease ends before that date or not). Deferred rent will still be payable over the greater of the balance of the term of the lease or a period of no less than 24 months.
Reg. 16(5) provides that the new date for payment of deferred rent applies to agreements which have already been made.
New powers have been given to the Victorian Small Business Commission (VSBC) to resolve disputes regarding eligible leases.
Once a referral of an eligible lease dispute is made, the VSBC must issue a dispute notice to the party which did not refer the dispute. The dispute notice must specify a time for a response to be provided and the consequences of a failure to do so.
If a landlord fails to respond to a dispute notice or responds outside the time provided, the VSBC may arrange mediation or issue a 'regulation 20A certificate' that mediation has failed or is unlikely to resolve the dispute. A Reg. 20A certificate may be issued if the VSBC is of the view that the landlord has not engaged in the mediation process in good faith.
The Victorian Civil and Administrative Tribunal (VCAT) may, in a subsequent hearing, "in the interests of fairness or justice" order that statements made or documents produced or shared in mediation be admissible evidence.
A tenant may apply to the VSBC for a binding order if its dispute relates to its request for rent relief and a Reg. 20A certificate has been issued (but only if that certificate includes a statement that the landlord has failed to respond to the dispute notice or not engaged in mediation in good faith). A tenant cannot apply for a binding order if it has already commenced VCAT or court proceedings in relation to the dispute.
The VSBC must give notice of the application to the tenant as soon as practicable after it is received. It may ask either party to provide further information and may request that the tenant provide evidence that it has taken reasonable steps and acted in good faith to seek agreement with the landlord.
The VSBC must make a binding order if notice has been given to the landlord, neither party has commenced VCAT or court proceedings, the VSBC is satisfied that the application complies with the Regulations and it is fair and reasonable in all of the circumstances to do so. Otherwise, the VSBC must dismiss the application.
In deciding whether to make a binding order, the VSBC may have regard to written submissions, correspondence, evidence and other material provided by the parties.
A binding order must direct the landlord to give or agree to give specified rent relief to the tenant and specify the reasons for ordering the specified rent relief. It may:
- direct that the landlord waive part or all of the rent payable from the date of the tenant's request to 31 December 2020
- direct that the landlord defer part of the rent payable from the date of the tenant's request to 31 December 2020, with the deferred rent to be repaid over the greater of the balance of the term of the lease or 24 months.
The VSBC will not hold any hearings regarding the making of binding orders, with decisions to be made 'on the papers'.
Review by VCAT
Within 14 days after a decision made by the VSBC to make a binding order, dismiss an application or amend an order, a party may apply to VCAT for a review of the VSBC's decision.
Breach of a binding order
A tenant who believes its landlord has breached a binding order made by the VSBC may apply to VCAT for a determination as to whether the landlord has complied. VCAT may make any orders it considers appropriate, including ordering the landlord to comply with the binding order or amending the binding order.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.