Update 8 – (the commercial leases Regulations amendments) - effects on commercial tenancies

This article sets out broad details of the key changes. For a more detailed analysis of the amending regulations see our subsequent article here.

On the afternoon of 29 September 2020 the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 (The Amending Regulations) issued. You can see a copy here: https://content.legislation.vic.gov.au/sites/default/files/2020-09/20-107sra authorised.pdf (if that link is not working you can copy-paste into your browser - something about the legislation.vic PDFs mean they don't play nicely with our links).

The Amending Regulations (as the name suggests) take the old Regulations and amend them (as opposed to setting out a fresh regime). Our article on the old Regulations is here.

The amendments will take effect from 29 September (and so will not apply retrospectively (save as mentioned below), notwithstanding that they are amendments to the old Regulations that themselves have effect from 29 March) (thank you to Sam Hopper for clarification on this point).

A key summary of the amendments is as follows:

• The effect of the Regulations has been extended to 31 December 2020;

• Regulations 9 and 18 have been amended to clarify that a landlord will not be prevented from terminating a lease or recovering possession of the land for defaults or circumstances other than non-payment of rent or outgoings or reduction or cessation of trade (previously a tenant could argue they were protected from eviction regardless of the reason once they had made an eligible request for rent relief). There remains an argument that a lease cannot be terminated for failing to pay rent, even where that failure relates to pre-29 March amounts;

• A tenant’s request for rent relief now needs to be accompanied by additional information including details of the tenant’s decline in turnover and evidence of that decline;

• A landlord’s rent relief offer must now:

  1. relate to the period starting on the date the tenant makes its rent relief request and ending 31 December 2020. This means that a tenant who delays in making a rent relief request (or whose request does not strictly comply with the Regulations) will be denied the benefit of the regulations until such time as a compliant request is made.

Importantly there may be an argument here that all eligible tenants should make new rent relief requests even if they have previously made a request under the old Regulations (this line of argument needs more thought – we will deal with it in our next update);

1. be “at a minimum proportional to the decline in the tenant’s turnover associated with the premises”. This effectively introduces the proportionality principles set out in the Code of Conduct (see our article here).

“Turnover” in this context has been defined to explicitly exclude “coronavirus economic response payments” (to eliminate the argument that jobkeeper payments should be taken into account when calculating a tenant’s turnover).

The requirement that the reduction relate to turnover associated with the premises has remained (so a tenant with multiple premises will need to demonstrate loss of revenue associated with the particular premises the subject of any request).

The requirement that relief must be by way of at least 50% rental waiver (with the balance able to be deferred and repaid by the tenant over the greater of two years or the balance of the term) remains.

• The date from which deferred payments can be recovered has shifted from 30 September 2020 to 31 December 2020 and this applies retrospectively (so landlords who have previously agreed to deferral with repayments commencing at the end of September are now not able to require their tenants to commence repayment until the end of December).

• Regulation 11 has been amended to expand a tenant’s right to “subsequent rent relief” where they have previously agreed on relief with their landlord to include:

  1. Where a prior agreement did not meet the new proportionality requirements; and

  2. Where a prior agreement did not apply to the end of December.

This is significant on its face but the additional relief will, again, only apply from the date the new request is made (and so tenants will not be able to go back in time and require proportional rent reductions from 29 March).

• The Small Business Commissioner has been given powers to make binding orders in relation to rent relief on application by a tenant in circumstances in which a landlord has failed to respond to a mediation request or has not engaged in the mediation in good faith. There will be a right to apply to the Small Business Commissioner to review such an order and a right to apply to VCAT for review.

Having regard to the reasonably high threshold before a landlord will be subject to an order under these provisions (that is failing to respond or failing to act in good faith) this power is not as onerous as might otherwise have been the case.

• There are other amendments to VCAT powers and definitions that we will explore in more detail shortly.

It is important to note that the requirement that a lease be in effect on 29 March to qualify as an “eligible lease” remains – that is to say tenant and landlords who have entered into new leases since 29 March are unaffected by the Amending Regulations.

Paul Nunan

Director

Accredited Specialist | Commercial Leasing

Jack Kelly

Lawyer