COVID-19 Commercial Leases Rent Relief - Extension and Revision of Victorian Regs

Regulations have today (29 September 2020) been passed by the Victorian government, extending the commercial tenancy rent relief scheme. 

The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 (Vic) (Revised Regs) makes significant changes to rent relief arrangements. We set out some of the major changes and clarifications below.

Revised Rent Relief Requirements & Eligibility

1 The relevant period in respect of which rent relief must be offered now ends 31 December 2020 (previously 29 September 2020).

2 Rent relief must be proportional to the percentage turnover decline.  Previously, the percentage turnover client was only a factor to be taken into account.

3 The Revised Regs clarify that turnover decline relates to the relevant premises only, not the tenant’s entire business.

4 Landlords are now also prohibited for terminating leases for non-payment of outgoings pending entry into a rent relief agreement.

5 A landlord’s financial ability to offer rent relief has be removed as an express factor to be taken into account when offering rent relief. (Arguably, this remains a relevant factor, given rent relief must be offered based on “all the circumstances of the eligible lease” and in any case remains a practical consideration.  Certainly, landlords may wish to raise their financial capacity in submissions and hearings.)

6 Eligibility for jobkeeper under the revised jobkeeper rules entitles a tenant to seek rent relief, subject to the tenant being an SME (turnover under $50m).

7 Loss of jobkeeper eligibility does not affect the ability of a party to pursue a rent relief request or enforce agreed rent relief arrangements.

Applications, Offers and Further Applications

8 Applications by tenants for relief must include details of turnover decline.

9 Seemingly, offers of rent relief from landlords need only relate to the period commencing on the date the tenant requests rent relief. This is a significant incentive for tenants to make rent relief requests as soon as practicable.

10 A tenant can seek further rent relief if a rent relief agreement was agreed prior to 29 September 2020 and:

(a)        the rent relief does not cover the period up until 31 December 2020;

(b)        the rent relief is not proportional to the tenant’s turnover decline.

It is likely that any such further rent relief will only be applicable from the date of a request for further rent relief. This puts tenants who acted promptly to seek and agree rent relief at a disadvantage.

11 There is still no guidance regarding what constitutes a “material changes in the financial circumstances of the tenant”, which will entitle a tenant to seek further rent relief.

Mediation, Binding Orders and Proceedings

12 The VSBC is given powers to making binding orders at the request of a tenant directing the grant of rent relief. This power to re-write commercial arrangements is very unusual in a non-judicial body (and even in a judicial body) and is likely to be exercised cautiously.

13 Where a landlord fails to:

(a)        respond to a dispute notice issued by the Victorian Small Business Commissioner (VSBC); or

(b)        engage in mediation in good faith,

a tenant may apply to the VSBC for a binding order. No such rights are granted to landlords to seek binding orders for equivalent tenant failures.

14 Binding orders (and amendment and revocation of them):

(a)        are to be determined by the VSBC “on the papers” (that is, no hearings will be held);

(b)        cannot be made if proceedings are commenced;

(c)        must comply with the same requirements as a landlord’s offer;

(d)        must be accompanied by reasons; and

(e)        are subject to review by VCAT and the courts.

15 There seems to be greater flexibility for the VSBC in what may be ordered when amending a binding order.

16 There are some very short timeframes (5 business days) for landlords to respond (including making submissions) to applications for binding orders. This may be a further incentive for landlords to refer a dispute to VCAT or commence court proceedings, in addition to the fact that binding orders are not finally determinative.

17 A landlord will only have 14 days to refer a decision to grant, amend or revoke a binding order to VCAT for review.

18 The Revised Regs clarify that things said and done by parties when referring rent relief disputes to mediation and for binding orders are not generally admissible in any VCAT or court proceeding.

Final Comments

While the above changes effected by the Revised Regs may seemingly provide strategic opportunities for landlords and tenants alike, parties should keep in mind the overriding “good faith” obligation under the Revised Regs.

A critical part of applying for and responding to requests for COVID-19 rent relief is ensuring compliance with the relevant legislation.  If you need advice regarding how the Revised Regs impact you, please contact us.