Victoria’s extension to the commercial tenancies rent relief scheme and what it means for you.

Insights by Emma Milne (Senior Associate), Scott McKenzie (Director), and Rajan Verma (Director), Velocity Legal 

The regulations extending the operation of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Principal Regulations) have been released.

The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 (Amended Regulations) have been hotly awaited since the Victorian Government’s announcement on 20 August 2020 that the rent relief scheme would be extended until at least the end of this year.

 

Important update for Tenants and Landlords

Relief for tenants is now only available from the date that their request is made, not retrospectively.

Tenants are urged to forward their request for relief to their landlord as soon as possible.

On the flip side, Landlords have certainty that future rent relief requests will no longer apply retrospectively.

 

Other Changes

So, what else has changed?

Item

Explanation

Extension of Regulations

The regulations are an extension of the Principal Regulations, rather than new regulations entirely. Unless otherwise varied by the Amended Regulations, the Principal Regulations continue to apply. A Victorian Rent Relief Rulebook summarising the Principal Regulations is available here.

Relevant Period

The relevant period for the prohibition on evictions and rent increases has been extended to commence on 29 March 2020 and end on 31 December 2020 (previously 29 September 2020).

However, the period of relief is now limited to apply from the date that the landlord receives the tenant’s request. Tenants are encouraged to get their request for rent relief to a landlord as quickly as possible to avoid losing out on any relief they may be entitled to.

Eligibility for Jobkeeper is sufficient. Actual participation in JobKeeper is no longer required

Instead of providing information evidencing that the tenant ‘qualifies for, and is a participant in the Jobkeeper scheme’, the tenant only needs to be entitled to the Jobkeeper payment. Evidence such as the receipt issued by the Commissioner of Taxation and the most recent notice under the Jobkeeper rules from the Commissioner of Taxation will now satisfy this condition.

Importantly, to satisfy the eligibility requirements under the amended Jobkeeper rules for any period after 28 September 2020, most tenants will need to show actual decline in turnover in the quarter ending on 30 September 2020 compared to the same quarter in 2019,

Even if a tenant ceases to be eligible for Jobkeeper after a request for relief has been forwarded or an agreement has been made, the lease will remain eligible for relief in most circumstances. In particular, the non-breach provisions, the prohibition on rent increases, the recovery of outgoings, the reduction in outgoings and variation of the tenant’s business hours will continue to apply to the lease.

Turnover limited to Premises

The relevant decline in a tenant’s turnover is strictly tied to the decline associated with the premises in question, and not any other premises. This means that landlords will not be required to offer relief in circumstances where the tenant’s overall turnover declines due to the performance of other sites unrelated to the landlord’s premises.

Coronavirus economic response payments excluded from turnover

All support payments provided under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (such as a Jobkeeper payment) are expressly excluded from ‘turnover’ for the purposes of determining whether the tenant is eligible for rent relief.

Non-breach provisions extended to include outgoings

A tenant will not be considered to be in breach of their lease for non-payment of rent or outgoings if they request relief under the Principal Regulations. Previously this protection was limited to rent only.

Practically speaking, unless the landlord and tenant have reached agreement as to the payment of rent and outgoings between 29 March 2020 and 31 December 2020, and a tenant has breached the agreement previously made, a landlord is unable to pursue a tenant for breach of lease until after December 2020.

Landlord’s ability to provide relief

The consideration of a landlord’s financial ability to offer rent relief and their discretion as to how much relief to offer has been removed, putting greater emphasis on a tenant’s reduction in turnover and their ability to repay the deferred rent. In our experience, the landlord’s financial inability to provide relief was being cited as a way to avoid offering the minimum relief without producing evidence substantiating the landlord’s claim.

Relief tied to Reduction in Turnover

At a minimum, the rent must be proportional to the decline in the tenant’s turnover associated with the premises. Previously, the decline in turnover was one of many considerations. This provides far greater certainty for tenants, but arguably overlooks that many non-institutional landlords may also be struggling.

Subsequent relief

A tenant can make a further request for relief for any agreement that was made between a landlord and a tenant prior to the commencement of the Amended Regulations which do not comply with the requirement that the relief must be ‘at a minimum, proportional to the decline in the tenant’s turnover associated with the premises’, or which do not apply until 31 December 2020. The further request for relief will only apply from the date that the request is provided to the landlord.

Repayment of deferred rent

A landlord cannot request repayment of any part of the deferred rent until 31 December 2020. This includes any deferred rent agreed prior to the commencement of the Amended Regulations which would otherwise be repayable from 30 September 2020.

Small Business Commission involvement

The Amended Regulations expand the Small Business Commission’s powers, creating a mechanism for assessing, deciding and making binding orders in rent relief disputes.

If an agreement cannot be reached using the Small Business Commission mediation service, the Small Business Commission can issue a certificate certifying that mediation has failed or is unlikely to resolve the dispute (Certificate). A tenant can then make an application for binding orders. Landlords are allowed only five business days to provide submissions in response to the application.

Before the Small Business Commission Orders can make any binding orders, they must be satisfied that:

1.     a Certificate has been issued;

2.     the landlord has:

a.     not engaged in mediation in good faith; or

b.     failed to respond to the notice received from the Small Business Commission;

3.     neither the landlord or the tenant has commenced proceedings in VCAT; and

4.     it is fair and reasonable in all the circumstances to make the binding order.

The order will direct the landlord to give or agree to give specified rent relief and the reasons for ordering the relief.

Orders issued by the Small Business Commission can be amended or revoked by application in limited circumstances.

The process is very prescriptive for both tenants and landlords and care must be taken to ensure that the application complies with the requirements and critical dates do not lapse.

VCAT’s authority

A landlord or tenant under an eligible lease can apply to VCAT for a review of a binding order within 14 days of the Small Business Commission making their decision.

Admissibility of evidence

The Amended Regulations affirm the long-standing position that, except in limited circumstances, anything said or done in the course of negotiating an agreement or attending to mediation is not admissible should the matter progress to VCAT.

 

Where to from here?

Landlords and tenants are encouraged to review their existing rent relief agreements and application (if any) to relief after 30 September 2020. Those tenants who have not requested relief should commence the process as soon as possible to get the benefit of the relief for the longest possible period. Landlord’s should carefully review future requests for relief and be aware of the relief they are required to provide.  

Our team is on hand to help you navigate the commercial leasing negotiations in Victoria. If you would like any specific advice regarding your lease, please contact us.

Insight Authors…

EMMA MILNE

Senior Associate

Emma is a gun at property law. She is relentless and meticulous in finding solutions for her clients. Whether developer, landlord, tenant or investor, she gets the job done. You’ll also be in good company if you’re a Melbourne Storm, Renegades or Pies fan.

0429 290 389  •  READ ALL OF EMMA'S ARTICLES

SCOTT MCKENZIE

Director

Scott is as sharp as they come. He guides his clients with precision and has an unrivalled hunger to find practical solutions to complex legal issues. Scott has been recognised as a leading commercial lawyer in Australia, and prides himself on tenaciously protecting his clients. If you want clear advice and exceptional outcomes, Scott is your man.

0432 920 510  •  VIEW DETAILED PROFILE   •  READ ALL OF SCOTTS ARTICLES

RAJAN VERMA

Director

Rajan is all about tax structuring and restructuring. He gets satisfaction from helping his clients obtain real tax benefits, such as CGT concessions or stamp duty exemptions. He has also learnt that saving tax is a great way to make friends. When things get too hard, Rajan is the guy you need to sort things out.

0402 811 298  •  VIEW DETAILED PROFILE  •  READ ALL OF RAJAN’S ARTICLES

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