Tuesday 5 May 2020

Government landlords - what the new COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 mean for you

The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 were made on Friday 1 May 2020, with retrospective effect from 29 March 2020.  The regulations apply to the State and its agencies when it is acting as a landlord or a licensor.

The most relevant aspects of the regulations in your context are as follows:

The regulations apply when all of the following criteria are met:

  1. The agreement is a commercial lease or licence, including a retail lease and was in effect on 29 March 2020; and
  2. The tenant is a SME entity as defined in the Commonwealth's Jobkeeper scheme and is a participant in this scheme.

Landlords are prevented from:

  1. evicting the tenant, re-entering or recovering possession of the premises, or otherwise drawing on the tenant's security for performance (eg, security deposit, bank guarantee, etc) if the tenant does not pay rent or changes their trading hours in certain circumstances during the period between 29 March and 29 September 2020.  (The landlord can continue to exercise its enforcement rig for other breach types); or   
  2. increasing the base rent between 29 March and 29 September 2020, unless the parties agree otherwise in writing.

If a landlord receives the benefit of a reduction in a third party outgoing (e.g. electricity rates, land tax), it cannot charge the tenant more than the tenant's proportionate share of the reduced outgoing payable and must reimburse the tenant for excess monies already paid.

Tenants initiate the rent relief process.  The landlord must respond within 14 days unless the tenant agrees to a longer time period.  The landlord's offer must conform with the requirements specified at regulation 10(4).  If the tenant's financial circumstances materially change later on, the tenant can make a further request restarting the process.

For any rent deferred under the agreed rent relief arrangements, the landlord must:

  1. not charge interest or other charges on the deferred rent;
  2. offer to extend the lease term by the deferral period on the same terms and conditions;
  3. allow the deferred rent to be amortised over the greater of 24 months or the rest of the term; and
  4. delay payment of the deferred rent until the earlier of 30 September 2020 and term expiry (not including any deferred rent extension).

If a tenant cannot operate their business at the premises at any time between 29 March to 29 September 2020, a landlord must consider waiving outgoings and other expense recovery rights.  In turn, landlords can reasonably cease or reduce provision of services at the premises during this disruption period.

If there is a dispute, either party can refer the dispute to the Victorian Small Business Commission (VSBC). Before a party can commence proceedings in VCAT or a court (other than the Supreme Court), that party needs a certificate from VSBC that mediation has failed or is unlikely to resolve the dispute.

Landlords and tenants have a general obligation to cooperate and act reasonably and in good faith in all associated discussions and actions.

The Regulations override anything to the contrary in the terms of an eligible lease and modify existing legislation and common law.

We recommend developing your internal processes and negotiation strategy now for meeting your landlord obligations, in readiness for receipt of rent relief requests.  We are happy to assist Victorian public entities with this.

The VGSO Property Team provide a full-service property law and Crown land practice to all aspects of the Victorian public sector.  In particular, the Property Team can assist with drafting and negotiating deeds of variation and side agreements for delivering rent relief, and provide advice on application of the Regulations to your leasing portfolio.  

To find out more, contact:

Margaret Marotti
Managing Principal Solicitor
Victorian Government Solicitor's Office

Anthony Leggiero
Managing Principal Solicitor
Victorian Government Solicitor's Office

Lauren Walley
Senior Solicitor
Victorian Government Solicitor's Office

Monday 23 March 2020

Farming and agricultural leases confirmed as not part of the Retail Leases Act 2003 - what is covered and what will this mean to you?

The Minister for Small Business has made a determination that the Retail Leases Act 2003 does not apply to leases of farm premises for commercial farming or agricultural purposes.

What farming and agricultural leases are covered by this exclusion?

The Minister's determination confirms that a lease will not be caught by the Retail Leases Act 2003 if the lease is to use the premises wholly or predominantly for any of the following activities for commercial gain:

  • Agricultural, pastoral, horticultural or apicultural activities
  • Poultry farming, dairy farming, aquaculture, tree-farming or any business that consists of the cultivation of soils, the gathering of crops or rearing of livestock
  • Grazing, including agistment
  • Activities prescribed as a farming operation for the purpose of the Farm Debt Mediation Act 2011. At this time there are no farming operations prescribed under that Act.

This exclusion is likely not to extend to tenants who lease farm land to carry out retail sale of goods and services to the public, so that the lease cannot be said to be wholly or predominantly for one or more of the above activities.  For example, leased premises used for operating cheese stores or winery cellar doors open to the public in some circumstances.

The exclusion will also not extend to tenants who are not operating for commercial gain. E.g. Hobby farming; for charitable or public purposes.

This exclusion takes effect from 29 October 2019, and all leases entered into or renewed from that date.

What does this mean for you?

In negotiating a new farming or agricultural lease, landlords and tenants should consider whether the tenant's proposed operations on the land meet the criteria of the exclusion set out above.  Amendments can then be made to the proposal depending on whether the parties would like the Retail Leases Act 2003 to apply.

When preparing or re-negotiating the lease, the permitted use under the lease should be appropriately drafted to ensure the lease is not captured by the Retail Leases Act 2003

For advice and assistance, please contact:

Margaret Marotti
Managing Principal Solicitor
Ph: 9947 1410

Lauren Walley
Senior Solicitor
Ph: 9947 1454