On 29 September 2020, the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 were released by the Victorian Government (Amending Regulations). The Amending Regulations make significant changes to the existing Regulations[1] (Principal Regulations) which deal with rent relief for commercial tenancies in Victoria. Tenants wanting rent relief for the period 29 September to 31 December will need to promptly make a written application (accompanied with the information required by (amended) Regulations 10(2)), as rent relief will only apply from the date the tenant submits a compliant request for rent relief. Following is an outline of the key matters addressed in the Amending Regulations.
Application of the Amending Regulations
The Amending Regulations apply from 29 September 2020 to 31 December 2020. This means that any applications for rent relief (or a variation to a rent relief agreement) made by a tenant on or after 29 September 2020, must comply with the Amending Regulations.
Changes to the definition of ‘’eligible lease’’
For a tenant to receive the protection and benefits afforded under the Commercial Tenancy Relief Scheme in Victoria, a lease must be an “eligible lease”. The definition of “eligible lease’’ has been amended to remove the requirement that a tenant be an ‘’employer who qualifies for Jobkeeper’’ and now captures tenants who are entitled to Jobkeeper under the Jobkeeper Rules[2] (i.e. employers, sole traders or religious institutions/practitioners).
The other qualifying criteria and exclusions in the original definition of “eligible lease” continue to apply in determining whether the lease is an eligible lease (i.e. the lease must have been in effect on 29 March 2020; the lease must be a retail lease or a non-retail commercial lease or licence and the tenant must be an SME entity. Agricultural leases are excluded as are group entities with turnover greater than $50million).
What is included in turnover
A tenant’s turnover is relevant firstly to determine whether the tenant is an SME entity (one of the criteria for the lease qualifying as an eligible lease) and secondly, to determine a tenant’s decline in turnover for the purposes of rent relief. The Amending Regulations now make it clear that a coronavirus economic response payment (e.g. Jobkeeper payment), is not included in calculating a tenant’s turnover.
Moratorium on evictions extended for non-payment of rent and outgoings
The moratorium on evictions for non-payment of rent, has been extended to non-payment of outgoings. Accordingly, a landlord under an eligible lease must not evict a tenant or re-enter or recover premises (or attempt to do so) for non-payment of rent or outgoings where the tenant has complied with the procedure for requesting rent relief or where the tenant has paid reduced rent in accordance with a rent relief agreement.
Information required to accompany a Tenant’s request for Rent Relief (Regulation 10)
The Amending Regulations now make it clear what information must be provided by a tenant who requests rent relief from its landlord. From 29 September 2020, a rent relief request (as well as a request under Regulation 11 for subsequent rent relief) must include:
a statement from the tenant:
(a) that the tenant’s lease is an eligible lease;
(b) that the lease is not excluded from the Regulations; and
(c) setting out the tenant’s decline in turnover associated with the premises (and no other premises) expressed as a whole percentage and calculated consistently with the actual decline in turnover test (being the test adopted under the Jobkeeper Rules); and
information evidencing the tenant:
(a) is an SME entity;
(b) is an entity entitled to a Jobkeeper payment under the Jobkeeper Rules including:
(i) the receipt number issued by the ATO when the tenant elected to participate in the Jobkeeper scheme; and
(ii) a copy of the tenant’s most recent notice to the ATO under the Jobkeeper Rules;
information evidencing the tenant’s decline in turnover which must include at least one of the following:
(a) extracts from the tenant’s accounting records;
(b) the tenant’s BAS relating to the relevant turnover test period;
(c) statements issued by a Bank; or
(d) a statement prepared by the tenant’s Accountant.
A request for rent relief made by a tenant prior to 29 September 2020, need only comply with the requirements in the Principal Regulations. However, if:
the tenant is yet to submit a request for rent relief; or
the tenant wishes to vary the rent relief agreement reached with the landlord under Regulation 11, including to apply for rent relief for the extended period of 29 September 2020 to 31 December 2020 (see below),
the tenant should promptly write to the landlord and include the additional information required under the Amending Regulations. The tenant should do this promptly as the landlord’s rent relief offer need only apply from the date the tenant submits a compliant request for rent relief.
Landlord’s rent relief offer
Under the Amending Regulations, a landlord’s rent relief offer must still be based on all the circumstances of the eligible lease however, the requirement to consider the landlord’s financial ability to offer rent relief has been removed. A rent relief offer made by the landlord after the commencement of the Amending Regulations must:
relate to up to 100% of the rent payable under the lease during the period starting on the date of the tenant’s request for rent relief and ending on 31 December 2020;
provide that no less than 50% of the rent relief offered by the landlord will be waived, unless otherwise agreed in writing;
at a minimum, be 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 for rent relief and ending on 31 December 2020;
take into account any waiver or reduction in outgoings; and
take into account whether a failure to offer rent relief would compromise a tenant’s capacity to fulfil its ongoing obligations under the lease.
Gross Leases
If the rent charged under an eligible lease is inclusive of outgoings, the landlord must offer rent relief with respect of the rent payable inclusive of outgoing.
Regulation 11- Subsequent Rent Relief
Where a lease has been varied or an agreement has been reached in respect of rent relief, a tenant may make a further request to the landlord for rent relief if:
the financial circumstances of the tenant materially change;
the variation or rent relief agreement was made prior to 29 September 2020 and is not proportional to the decline in the tenant’s turnover associated with the premises; or
the rent relief does not apply to the whole of the period starting on the date of the tenant’s request for rent relief and ending on 31 December 2020.
Despite the tenant’s right to make a request for subsequent rent relief under the Amending Regulations, the tenant’s entitlement for subsequent rent relief will only apply from the date that the tenant submits a compliant request for rent relief in accordance with Regulation 10(2).
Payment date for Deferred Rent extended
A landlord must not request repayment of any part of deferred rent before 31 December 2020 (previously 30 September 2020). This change will apply even if the parties have previously reached agreement about the repayment of deferred rent.
Mediation and new powers of the Victorian Small Business Commissioner (VSBC)
Application for mediation
Where a landlord and tenant cannot agree rent relief to apply, the matter can be referred to the VSBC for mediation. The Amending Regulations now specify the information that must accompany a party’s application for Mediation.
Dispute notices and section 20A certificates
If the VSBC receives an application for Mediation, it must issue a dispute notice to the Respondent, requiring that party to respond to the application. If the landlord is the Respondent and fails to respond to the VSBC’s dispute notice, the VSBC may arrange a mediation or issue a regulation 20A certificate. A regulation 20A certificate can be issued if a mediation has failed (or is unlikely to resolve the dispute) or if the VSBC is of the view that the landlord has not engaged in the mediation in good faith.
Binding Orders
A tenant may apply to the VSBC for a binding order if the VSBC has issued a regulation 20A certificate. A binding order is a direction by the VSBC requiring a landlord to give rent relief to a tenant. The VSBC can make a binding order regarding rent relief where neither party has commenced proceeding and it is fair and reasonable to make the binding order. Binding orders can be amended or revoked in certain circumstances by the VSBC and the parties can apply to VCAT to review binding orders.
Effect of subsequent ineligibility for Jobkeeper
Rent Relief Agreement in place - If on or after 29 September 2020, a tenant ceases to be entitled to Jobkeeper and there is a rent relief agreement in place , the lease continues to be an eligible lease and the following Regulations continue to apply: Regulation 9 (Non-payment of rent or outgoings during relevant period); Regulation 12 (Prohibition on rent increases); Regulation 14 (Recovery of outgoings or expenses); Regulation 15 (Reduction in outgoings); and Regulation 18 (Tenant may reduce business hours or cease business during relevant period).
No Rent Relief Agreement- If before, on or after 29 September 2020 a tenant under an eligible lease makes a request for rent relief and before there is any agreement relating to rent relief, the tenant ceases to be entitled to Jobkeeper then on and from 29 September 2020, the tenant’s lease is an eligible lease for the purposes of the Regulations until an agreement relating to rent relief entered into by the tenant ceases to apply.
[1] COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic);
[2] The Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth)
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4 October 2020
Kathy Tsiaplis is an Australian Legal Practitioner with extensive experience in Property Law. She has previously worked inhouse for both landlord and tenant operators and now as the Principal of KTSI Legal, services both landlord and tenant clients. Kathy is a member of the Law Institute of Victoria Leases Committee. For any enquiries, please contact Kathy directly on 0414 645 216 or by email Kathy@ktsilegal.com.au
The information in this article is intended to provide a general guide to the subject matter. Although we have made every effort to provide accurate information, we do not guarantee the information is accurate at the date it is received or that it will continue to be accurate in the future. Advice should be sought about your specific circumstances.
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