COVID-19 Rent Relief Regulations
- Published: May 6, 2020
- Author: Alex Stapleton
On 1 May 2020, the Victorian Government passed the Covid-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (the Regulations) in response to the National Cabinet Mandatory Code of Conduct released on 7 April 2020 (the Code). The Regulations are taken to have come into operation on 29 March 2020 and will end on 29 September 2020 (the Relevant Period).
The Regulations offer the following objectives:
- to implement temporary measures to apply to tenants and landlords under eligible leases to mitigate the effect of the COVID-19 pandemic; and
- to implement mechanisms to resolve disputes concerning eligible leases.
In summary of the Regulations we note the following laws and principles.
General obligation of a landlord and tenant
A landlord and tenant under an eligible lease must cooperate, act reasonably and in good faith in all discussions and actions associated with matters to which the Regulations apply.
The Regulations only apply to eligible leases
For a lease to be an eligible lease, it must satisfy the following criteria:
- The lease must be a retail lease under the Retail Leases Act 2003 or a commercial lease or licence;
- The lease must have been in effect on 29 March 2020;
- The tenant must be a Small to Medium Enterprise (SME) and
- The tenant must be eligible for and is a participant in the JobKeeper scheme.
An eligible lease does not include a lease or licence under which the premises may be used for a number of specific agricultural purposes.
A tenant can request rent relief from the landlord
Regulation 10 stipulates that a tenant under an eligible lease must apply to the landlord in writing and be accompanied by:
- a statement that the tenant’s lease is an eligible lease; and
- information that evidences that the tenant is an SME entity and is eligible for and is a participant in the JobKeeper scheme.
The landlord must respond within 14 days of receiving the request or a time as agreed between the parties.
The landlord’s offer of relief must relate to up to 100% of the rent payable under the eligible lease during the Relevant Period, provide that no less than 50% of the rent relief offered by the landlord will be in the form of a waiver of rent, unless otherwise agreed in writing, and must take into account the following circumstances:
- the reduction in a tenant’s turnover associated with the premises during the Relevant Period;
- any waiver given by the landlord;
- whether a failure to offer sufficient rent relief would compromise a tenant’s capacity to fulfil the tenant’s ongoing obligations;
- a landlord’s financial ability to offer rent relief as a response to the COVID-19 pandemic; and
- any reduction to outgoings charged, imposed or levied in relation to the premises.
Rent relief can be given effect by a variation to the eligible lease or any other agreement between them that gives effect to the rent relief.
If the financial circumstances of a tenant materially change after a variation to the eligible lease has been made, the tenant may make a further request to the landlord for rent relief, however the landlord does not have to offer a minimum 50% rent waiver in respect of this further request.
Prohibition on rent increases
During the Relevant Period, a landlord must not increase the rent payable under an eligible lease at any time, unless the parties agree in writing or if the rent of a retail lease is determined by volume of trade.
Payment of deferred rent
If any rent is deferred by variation to an eligible lease the landlord must not request payment of any part of the deferred rent until the earlier of 29 September 2020 and the expiry of the term of the eligible lease (before any extension if provided).
The landlord must also vary the eligible lease so that tenant must pay the deferred rent to the landlord amortised, as agreed between the parties, over the greater of:
- the balance of the term of the eligible lease, including any extension to that term; and
- a period of no less than 24 months.
If the payment of any rent is deferred, the landlord must offer the tenant an extension to the term of their eligible lease on the same terms and conditions that applied under the lease before the commencement of the Regulations. The extension offered must be equivalent to the period for which rent is deferred, unless a landlord and a tenant agree in writing.
Other obligations/rights of a landlord and tenant
- A landlord must consider waiving recovery of any outgoing or other expense payable by a tenant for any part of the Relevant Period that the tenant is not able to operate their business at the premises.
- A tenant is not in breach of the eligible lease if, during the Relevant Period, they reduce the opening hours of the business they carry out or they close the premises and cease to carry out any business.
- Parties must not communicate protected information in connection with relief request negotiations and the operation of the Regulations with the usual exemptions for advisors, financiers etc and as required by law.
- Parties may refer a dispute in connection with the Regulations to the Small Business Commission for mediation.
- A landlord may disclose a request for relief and give the statement and information under Regulation 10(2) to the Commissioner of State Revenue for the purpose of applying to be eligible for a tax relief.
Unlike the Code, the Regulations do not provide any specific formula to determine rent relief; that is, there is no “proportional formula” which would mean, for instance, that if a tenant suffered a 50% decline in turnover it would not entitle the tenant to 50% rent relief.
It appears much will depend upon the parties negotiating in good faith.
Should you have any queries regarding your position as a tenant or landlord and the upshot of the Regulations, please do not hesitate to contact Asparq Legal for further advice and support.
Disclaimer: The information contained herein is of a general nature only and is not intended to be relied upon nor is it a substitute for appropriate professional advice. Whilst all care has been taken in the preparation of the material, it is not guaranteed to be accurate. Individual circumstances are different and as such, require specific examination. Asparq cannot accept liability for any loss or damage of any kind arising out of the use of or reliance upon all or any part of this material. Additional information may be made available upon request.