In April, the Victorian Parliament passed the COVID-19 Omnibus (Emergency Measures) Act 2020 which provided the framework for new regulations to enforce the National Cabinet’s Mandatory Code of Conduct.
In effect for 6 months from 29 March, the new legislative platform provides the Minister for Small Business extensive powers to make regulations relating to commercial tenancies and incorporate the Code into Victorian law. Provisions include:
– Application to “eligible” leases, which cover a broader spectrum of business leases than provided under current retail lease legislation, and include licensees, franchisees and non-retail occupants where the tenant is:
An SME (small and medium-sized enterprise) entity, defined as having less than $50 million turnovers in the current year
An employer participating in the Jobkeeper scheme.
– An obligation for both Landlords and Tenants of eligible leases to negotiate amended lease provisions and mediation prior to legal action.
– Prohibition of eligible lease terminations.
– Omnibus powers, including changing any period of either a Landlord or Tenant requirement (i.e rent payments or reviews), changing or limiting a Landlord’s rights, exempting either party from complying with lease requirements, modifying the operation or common law relating to a lease, extending lease terms, deeming regulations to be incorporated within lease terms and penalties for non-compliance offences.
The emergency legislation’s overall approach
– Tenants must initiate a request for rent relief in a prescribed manner.
– There is no exact formula. Landlords and Tenants must act reasonably and in good faith.
– The Landlord’s offer is to be based on all relevant circumstances, including the Landlord’s financial capacity to offer rent relief.
– Non-compelling mediation to arrive at a mutually beneficial solution will be facilitated through the Small Business Commission. A dispute can be referred to a court or VCAT if the mediation fails.
Key Regulation provisions
– Confidentiality – Information exchanged between the Landlord and Tenant is confidential.
– Rent Requirement – Tenants are required to pay their rent but are not in breach of an eligible lease for not paying if there is an alternate agreement.
– A Landlord may not re-enter – A Landlord may not re-enter premises or evict a Tenant, or have recourse to any surety if a Tenant doesn’t pay the original rent, again on the basis that the Regulation procedures have been followed.
– Tenant’s Submission – Tenant requests for rent relief must be a written submission stating the lease is eligible, the information verifies the tenant to be an SME entity and participant in the Jobkeeper Scheme.
– A Landlord must offer relief – Upon receipt of a valid request, the Landlord must offer relief within 14 days unless a written alternate time frame is mutually agreed.
– Landlord’s Offer – The Landlord’s offer must take all circumstances into account and provide up to 100% relief during the relevant (and agreed) period; at least half by way of waiver and the balance deferred unless otherwise agreed in writing.
– Relief Factors – Reduction of the Tenant’s turnover; the Tenant’s capacity to fulfill ongoing obligations under the lease without relief; reduction to outgoings; and the Landlord’s financial capacity to offer relief.
– Changed Circumstances – If the Tenant’s financial position deteriorates after an agreement is reached, the Tenant may initiate a further relief request within the same procedural structure, and the Landlord must also follow the same process.
– Rent to not increase – Unless mutually agreed, rent must not increase during the relevant period. (Not applicable to turnover based rent).
– Lease Extension – If a rental deferment is agreed, the Tenant has the right to an extension of lease term on the same provisions which applied prior to the Regulations.
– Outgoings – A Landlord must consider waiving recovery of Tenant outgoings during the period a Tenant is unable to operate from the premises.
– Cessation of business operation – The Landlord may reduce or cease the provision of services to premises as reasonable and as agreed with a Tenant.
– Reduced Outgoings – Any reduction in Landlord’s outgoings must be proportionally shared with the Tenant, and reimbursed if already paid.
– Deferred rent payment – Deferred payments may attract no interest or fees, and must not be required until the lease expiry date or 29 September 2020, whichever is earlier; and amortization must be agreed over the balance of the lease term or 24 months, whichever is later.
– Business hours – Reduction of opening and closing hours or business closure will not be a breach of the lease.
– Mediation – A dispute may be referred to the Small Business Commission for free mediation, either as a formal mediation or by a discussion with either or both parties. The parties are entitled to legal representation but the mediator may meet either or both parties without partitioners present.
– If mediation fails – A matter may only be heard by VCAT or a lower court with a Small Business Commission written certificate that the mediation has failed or is unlikely to resolve the dispute.
Should you wish to discuss any of the above for clarity, please do not hesitate to contact us.