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

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