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

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

So I'm a 'retail' landlord - but what does that mean?

Government agencies are often landlords of 'retail premises' under the Retail Leases Act 2003, for example where the agency leases land at a train station for use as a café or part of a public hospital for use as a florist or kiosk.

The Retail Leases Act was introduced in 2003 to provide greater certainty and fairness in the commercial relationship between landlords and tenants. This was driven by a desire to protect and provide greater security of tenure for small businesses.

When you are negotiating a lease, it is crucial to identify at the outset of negotiations whether it is a 'retail lease' within the meaning of the Act. Where the Act applies, the parties to a lease cannot agree otherwise. A provision in a lease is void if it is inconsistent with anything in the Act.

In some instances, if the Act applies, a landlord may even prefer not to proceed with the transaction, for example, if the premises are likely to require significant and expensive capital repair or refurbishment, as this burden could fall on the landlord. It may be more economical to find a tenant who wishes to make use of the premises for non-retail purposes, if the nature of the premises permits.

Landlords' obligations

The Act imposes quite onerous obligations on landlords. Depending on the circumstances, there can be serious consequences for failure to comply, for example, the tenant may have a right to terminate (or conversely, to extend) the lease.

Some of the main obligations which the Act imposes on landlords are:

• Provide a copy of proposed lease and information brochure: the landlord must provide to a tenant copies of the proposed lease and the Victorian Small Business Commission information brochure, as soon as the parties enter into negotiations. Failure to do so is an offence against the Act.
• Disclosure requirements: the landlord is required to provide a Disclosure Statement to a tenant at least 7 days before entering into the lease, which sets out the key information about the lease.  If the landlord fails to provide a Disclosure Statement, the tenant may, after complying with certain notice requirements, withhold rent owed and is not liable to pay rent for the period from the day on which the tenant's notice was given until the tenant receives a Disclosure Statement. The tenant may also terminate the lease at any time before the end of 7 days after receiving the delayed Disclosure Statement.
• 5-year minimum term: the landlord must offer an initial term of at least 5 years (but the tenant can waive its right to a 5-year term with the Small Business Commissioner's approval).
• Provide a copy of the executed lease: the landlord must give the tenant a copy of the lease signed by the parties within 28 days of it being signed. If the landlord fails to do so, the tenant may give written notice terminating the lease.
• Obligation to notify tenant of options for renewal: where a lease contains an option to renew, the landlord must give the tenant notice in writing of the last date to exercise the option, between 6 and 12 months in advance of the date on which the option is no longer exercisable. Failure to do so means that the lease continues, and the period for exercising the option extends to six months after the landlord notifies the tenant as required.
• Notice of landlord's intentions concerning renewal: where a tenant does not have an option for renewal under the lease, the landlord must also give written notice between 6 and 12 months before the end of the lease. This notice must either offer lease renewal or state that the landlord is not offering a lease renewal. If the landlord fails to give notice within the period, the lease continues until six months after notice is finally given to the tenant, or when the tenant terminates the lease.
• Must allow transfer of lease: a landlord can only refuse consent to assign a lease in limited circumstances set out in s 60(1) of the Act, such as where the proposed use is not consistent with the permitted use under the lease.
• Obligation to maintain premises: the landlord must maintain the structure, fixtures and plant and equipment in the premises consistently with their condition at the beginning of the lease. The landlord cannot pass on capital costs incurred in complying with this obligation, such as major repairs and replacements, to the tenant.1
• Cannot pass on certain costs: the landlord cannot recover from the tenant any capital costs (unless the lease expressly requires the tenant to undertake certain specific capital works at the tenant's own cost), depreciation, land tax or legal costs related to preparing the lease.
• Unconscionable conduct: the Act prohibits unconscionable or unfair conduct by both landlords and tenants, and allows for compensation for loss caused by that conduct. 

Resolving disputes

Where parties cannot agree on resolution of an issue arising under a retail premises lease, either party may refer the dispute for mediation to the Victorian Small Business Commission (VSBC).

Only once the VSBC certifies that mediation has failed, can the parties apply to the Victorian Civil and Administrative Tribunal (VCAT) for a formal hearing.

VCAT has exclusive jurisdiction to hear and determine some disputes arising under a retail premises lease. VCAT also has the same jurisdiction and powers as the Supreme Court in relation to proceedings for relief against forfeiture. This means that tenants can seek an order allowing them to stay in the premises, even in circumstances where they have breached the lease and failed to rectify the breach within time, by satisfying VCAT that the tenant is in a position to promptly rectify the breach and the lease should be reinstated.

As property law experts within Government, the VGSO Property Team is well placed to assist you with retail leasing arrangements and other property issues.

For advice and assistance, please contact:

Anthony Leggiero
Managing Principal Solicitor
Ph: 9947 1430

Margaret Marotti
Managing Principal Solicitor
Ph: 9947 1410

Elizabeth Wortley 
Principal Solicitor
Ph: 9947 1433

This blog was prepared with the assistance of Margie Brown, Law Graduate.

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1 Small Business Commissioner Reference for Advisory Opinion [2015] VCAT 478

Let’s get this show on the road!

Often, our clients' projects require the temporary or permanent use and occupation of land to construct improvements, or to support nearby construction.

If some or all of that land is a road at law, it can only be used for the project if it is temporarily closed, which is not always possible, or discontinued.  The danger of not properly discontinuing the land's status as a road is that the use or occupation of the land may amount to public nuisance, with legal consequences. 

What is a road?

In Victoria, a road includes any area of land that is a highway at common law.  More specifically, a highway is an area of land, at soil level or in stratum, over which the public may pass on or over at all times.

It is not necessary that land is physically a road for it to be a highway at common law.  The land may be suitable only for pedestrian access or for use by bicycles or horse-riders, rather than cars or other vehicles.  Even where land is only capable of passage by ferry, the ferry route itself may be a highway.  As long as the land meets the legal requirements, it will be a highway, and therefore a road.

Roads also include areas of land (at soil level or in strata) regulated under statutes, such as the Road Management Act 2004 (RM Act).  Under the RM Act, roads are generally categorised as freeways, arterial roads, non-arterial State roads and municipal roads.

Who owns roads?

If you wish to temporarily or permanently access or occupy land which has the status of a road, you will probably need to negotiate with the land owner on the scope of the required rights and changes to the road's status.

As a general principle, the Crown owns land over which there is a freeway or arterial road, regardless of whether the road is at surface level or in stratum, as well as certain land declared as road under general legislation governing Crown land.  Otherwise, roads are generally owned by the municipal council of the municipal district in which the road is located.

Acquiring and dealing with land which is a road

If land is a road, it is generally not possible to exclusively access or occupy the land unless its status as a road is temporarily paused (where this option is available under legislation) or permanently discontinued.  First, it is necessary to identify the relevant legislative power to temporarily close or discontinue the road, and then to do so in accordance with the power.  

These powers exist in a wide range of statutes, such as the RM Act in relation to roads generally, and  the Project Development and Construction Management Act 1994 and the Major Transport Projects Facilitation Act 2009 in relation to roads over land which is required for a particular project.

A number of formalities may be required before a road can be discontinued, for example:

• bringing the land within a declared project area;

• public notification and/or consultation;

• obtaining the consent of other parts of Government; and 

• amending a planning scheme.

Depending on the applicable legislative power and exemptions, discontinuation of a road can be achieved in as little as 28 days or take as long as 18 months.  

Once the road has been formally discontinued in accordance with the relevant power, the owner of the land can deal with that land as it pleases.  As a general rule, where roads on Crown land are discontinued, the underlying land normally returns to unreserved Crown land status.

Need some help?

Victoria's roads are governed by a complex legal framework.  Our Property Team has expertise in advising Government clients on a broad range of issues that arise when accessing and acquiring rights to land comprising a road.

For further advice, please contact: 

Anthony Leggiero

Managing Principal Solicitor

03 9947 1430

Margaret Marotti

Managing Principal Solicitor

03 9947 1410

Eloise Connelly

Principal Solicitor

03 9947 1493

Elizabeth Wortley

Senior Solicitor

03 9947 1433

You can’t do that! Restricting use and sale of Government land

The Victorian Government Landholding Policy permits the sale or transfer of land to a government or community organisation for a public or community purpose where the terms of sale include a restriction on title reflecting that purpose which allows the State to control the future use and transfer of the land after disposal.[1]

The transfer of State owned or Crown land for public or community purposes will often be for nil consideration in recognition of the fact that the transferee will have obligations to make the land available for the intended purpose and to ensure that it is properly maintained for safe and enjoyable community use.

Once an agency has determined that it wishes to transfer land to an appropriate entity for public or community purposes, the next question is how best to ensure that the entity uses the land for the designated purposes and does not sell it to a third party to achieve a windfall gain or a profit.

Options for restricting use and sale of Government land

Restrictive covenants

As the Landholding Policy states, the restrictions are to be registered on the title to the land.  The traditional means of restricting use of land is via a restrictive covenant registered on the title of the land to be burdened by the covenant.  A restrictive covenant is an agreement between two landowners that one land owner will not do certain things on their land which could negatively affect the amenity of adjoining owners, for the benefit of the land held by the other owner. 

However, restrictive covenants are often not available to the State because they generally require that the State owns adjoining or reasonably contiguous land in freehold which will benefit from the restrictions set out in the covenant.  If these requirements are not met, the option will not be available.  The other challenge is that restrictive covenants can only include negative obligations (ie: an obligation not to do something on the land) and cannot oblige the burdened owner to spend money.

Statutory agreements

To address the shortcomings of restrictive covenants, various Acts provide for statutory agreements that can be entered into for public purposes and impose positive land use and development obligations on landowners.  Such agreements may be registered on the title to the land and can bind future transferees of the land, if transfer is permitted under the terms of the agreement.  Some of the more common statutory agreements are discussed below.

Section 173 of the Planning and Environment Act 1987 allows a responsible authority, commonly a local Council, to enter into an agreement with a land owner.  The agreement can provide for a restriction on the use or development of land, or any matter intended to achieve a planning objective in Victoria.  The responsible authority can enter into the agreement on anybody's behalf, and assumes responsibility for its enforcement once the agreement is recorded on the title to the land.

Where land is part of a designated project area, section 22 of the Project Development and Construction Management Act 1994 and section 49 of the Development Victoria Act 2003, allow the project authority under each Act to enter into an agreement with the transferee regarding use or development of the land.  In both cases, the agreements may be registered on title to the land as if they were an agreement under s 173 of the Planning and Environment Act 1987.  The key difference is that these agreements do not rely on the cooperation of the local Council to enforce the landowner's promises under the agreement and can instead by led and enforced by the project authority or facilitating agency.

Similarly, under s 69 of the Conservation, Forests and Lands Act 1987, the Secretary body corporate under that Act may enter into an agreement with a land owner relating to the management, use, development, preservation or conservation of land.  An agreement may also be entered into to give effect to the purposes of a law considered to be a relevant law.  The Act provides that any agreement will bind successors as long as the Secretary applies in writing to the Registrar of Titles to have it recorded on the title to the land.

A relatively recent example is the advent of the forestry and carbon management agreements as well as the carbon sequestration agreements.  These are provided for by a detailed scheme contained in the Climate Change Act 2017 (Vic).  The Act recognises proprietary rights in carbon sequestration and allows for the recording of various agreements between the landowner and the relevant person, which create binding obligations that run with the land and ensure the ongoing management of forestry, soil, and carbon sequestration rights.

As Property law experts within Government, the VGSO Property Team is well placed to assist you with land use arrangements and other property issues.  If you need further advice in relation to restricting the future use and transfer of State owned land, please contact:

Elizabeth Wortley
Senior Solicitor
9947 1433
elizabeth.wortley@vgso.vic.gov.au

Eloise Connelly 
Senior Solicitor
9947 1493
eloise.connelly@vgso.vic.gov.au


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[1] Department of Treasury and Finance, Victorian Government Landholding Policy and Guidelines (September 2017) ii.

The 2018-2019 Victorian Budget: Does your project involve sale, acquisition or leasing of land?

In response to the demands placed on existing State services and public infrastructure by strong population growth, the Victorian Budget announced allocation of funding for several substantial infrastructure projects.  Funded projects have been identified in diverse fields, such as: road and rail; building and expanding hospitals; purchasing land for new schools; and delivering new or upgraded facilities for emergency services staff and volunteers.  In addition, the Federal budget announced funding for the State's Airport Rail Link and North East Link freeway infrastructure projects.  In order to deliver these infrastructure projects, sponsoring agencies will need to acquire, sell, lease and access land, and in doing so, navigate legislative and policy frameworks regulating Government dealings with land.

The Victorian Government Land Transactions Policy and Guidelines April 2016 establishes strict requirements for Victorian Government agencies when dealing with the sale, acquisition and leasing of land.  Key features of the policy include that in the absence of an exemption, agencies:

• must obtain the Victorian Government Land Monitor's approval for any sale or purchase of an interest in land with a value of $750,000 or more before an offer is made;
• must not grant an interest in land at a price less than the current market rent or sale value, as determined by the Valuer-General Victoria (VGV);
• must not purchase an interest in land at a price which is greater than the current market rent or sale value, as determined by the VGV;
• must not sell any land without following a public process such as an auction, tender or expression of interest campaign;
• prior to offering land for sale by a public process, have in place the most appropriate zoning which enables the land to be used or developed in accordance with its highest and best use; 
• must not grant a lease of land which contains an option to purchase; and
• must have regard to the existence of native title rights and interests in the land.

Where a lease over Crown land is proposed, an agency must consider: whether the land is reserved for a public purpose; who the appointed land manager is; the criteria for approving the permitted use and agreement terms as set out in legislation; and the maximum tenure lengths permissible.  These are typically set at 21 years for leases and 10 years for licences (each including options).  This analysis will help to identify the Government entity with authority to grant the lease and any salient legislative restrictions such as maximum terms and limitations on permitted uses.  The Leasing Policy for Crown Land in Victoria 2010 administered by DELWP ensures a consistent approach to leasing of Crown land by requiring:

• use of DELWP's standard form leasing documentation; and
• all lease proposals by a land manager other than the Minister for Energy Environment and Climate Change to have the Approval in Principle of the Minister and subsequent terms and conditions approval.

The VGSO Property and Native Title Teams have extensive experience in Government property transactions and are well placed to assist agencies in navigating compliance with legislation and policies applicable to sale, acquisition and leasing of land.

Anthony Leggiero
Managing Principal Solicitor
9947 1430

Mary Scalzo
Managing Principal Solicitor
9947 1419

Easement - Do we have one?

The State and its agencies own a significant amount of freehold land across Victoria, in addition to the extensive Crown Lands Estate.  The creation of easements to either benefit or encumber that freehold land is often necessary to realise objectives to develop either State owned land or privately owned surrounding land and ensure the efficient provision of necessary infrastructure and facilities.  For example, the State may require a utility service provider to install pipes, fittings, and drains under State owned land to provide a water supply to a proposed new school building.  Alternatively, a developer of land that adjoins State owned land may require a right to connect to drainage or sewerage pipes under the State owned land before the local Council will grant them a permit to construct units on their land and certify the necessary plan of subdivision.

Do we need an easement?

Before deciding on creating an easement, it is important for the department or agency to step back and ask a few questions.  For example, you should consider:

1. Will a right to use the land in common with others suffice or is there a need for exclusive possession?
2. Is the right to use the land to be enjoyed by whomever is the owner of the benefiting land at any given point in time or is the use right intended to be personal to the State or an individual
3. Are the following (4) essential characteristics of an easement present?[1]

• There must be a dominant and a servient tenement - The land that benefits from the easement is the dominant tenement and the land subjected to the easement is the servient tenement.
• The right must accommodate the dominant tenement - The right claimed as an easement must be reasonably necessary for the better enjoyment of the dominant tenement and the two parcels of land affected by the easement arrangement must be contiguous.
• Both tenements must be owned or occupied by different persons.
• The right must be of a kind capable of forming the subject matter of a grant - The right must be sufficiently precise and certain and not confer a right to exclusive possession.

The answers to these questions will assist with determining whether an easement is the appropriate form of tenure.

Easements create non-possessory, proprietary interests in land.  An easement will be the appropriate form of tenure if the (3) questions above are answered in the affirmative.
If exclusive possession is needed, a lease will be the appropriate instrument, not an easement.  If a mere personal right to use land for a defined time period is required, a contractual licence will be needed rather than an easement.

How should we create the easement?

Statute

A certified plan can be lodged at Land Use Victoria for the purposes of creating an easement, upon the Registrar of Titles' registration of that plan.  A planning permit will normally need to be obtained under the relevant planning scheme and lodged with the certified plan, registration application, the title to the burdened land and other necessary documentation [2].
 
In the context of a subdivision, easements necessary for the reasonable enjoyment of the property may be created by being shown on the certified and registered plan of subdivision.[3] These include easements of way, drainage, party wall, supply of water, gas, electricity, sewerage, telephone and other services either through, over or under lands.

The scope of the rights granted to the beneficiaries of these easements is determined by the common law.  Where more bespoke or specific rights are required, an express grant will be needed as outlined below.

Express Grant

Creation of an easement by express grant can be done by deed or using Land Use Victoria's approved form.

While existing equitable easements are protected by law in Victoria in the sale scenario, formal registration of an easement is nevertheless recommended in the interests of clarity and certainty.  Registration may also save an easement which might otherwise be regarded as abandoned through extended non use.

Doctrine of the lost modern grant

The common law doctrine of lost modern grant will apply to create easements over land in Victoria where there is proof that a right in the nature of an easement has been used openly and continuously for at least 20 years, without objection by the owner of the burdened land.

The doctrine of the lost modern grant does not operate over Crown land.

Wrongful interference with or obstruction of an easement constitutes the tort of nuisance and, among other things, gives the dominant owner a right to obtain damages and/or an injunction.

As Property law experts within Government, the VGSO Property Team is well placed to assist you with land use arrangements and other property issues.  If you need further advice in relation to easements, please contact:

Jennifer McLean
Senior Solicitor
9947 1429
jennifer.mclean@vgso.vic.gov.au

Elizabeth Wortley
Senior Solicitor
9947 1433
elizabeth.wortley@vgso.vic.gov.au

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[1] These (4) characteristics are not a requirement for statutory easements in gross conferred upon various government or other bodies that provide essential public services, such as gas, power and water supplies.

[2] Subdivision Act 1988 ss 23 and 24

[3] Transfer of Land Act 1958 s98

As a landlord, do I have to comply with the Retail Leases Act 2003?

As a general rule, landlords, particularly landlords of commercial properties, enjoy superior bargaining power when it comes to leasing their properties.  The terms and conditions of leases are set by the landlord and, subject to market conditions and the bargaining power of a potential tenant, are often non-negotiable.  In these circumstances, the only option for a potential tenant may be to walk away from the transaction.

The Retail Leases Act 2003 (Act) addresses this imbalance in bargaining power for leases of retail premises in a number of ways, for example by providing that:

• a landlord cannot pass on to a tenant the cost of preparing and negotiating the lease; 
• a landlord must consent to a tenant's request for assignment of the lease except in limited circumstances;
• a tenant has a right to a minimum term of 5 years, even if the lease provides for a shorter term.  However, a tenant can contract of out this right if the tenant obtains a certificate from the Small Business Commissioner under s 21(5) of the Act and gives the landlord a copy of the certificate; and
• a landlord is responsible for undertaking certain repairs and maintaining the premises in certain ways.

What are 'retail premises'?

The Act applies to leases of 'retail premises' entered into or renewed after 1 May 2003.
'Retail premises' are premises that, under the terms of the lease, are used wholly or predominantly for:

• the retail sale or hire of goods;
• the retail provision of services; or
• the carrying on of a specified business or specified kind of business as determined by the Minister.

Exemptions to the Retail Leases Act 2003

Not all retail tenancies are leases of 'retail premises'.  Some types of leases are exempt from the application of the Act, and the Minister for Small Business, Innovation and Trade has the power to exempt further kinds of business, premises, tenant or leases.
In Government, some of the more commonly encountered categories of exempted leases are:

• Local council premises used wholly or predominantly for public or municipal purposes;
• Leases for premises used wholly or predominantly for public or municipal purposes with a rent of $10,000 or less;
• Premises where occupancy costs under the lease are more than $1,000,000 p/a;
• Premises where the tenant carries on the business as the landlord's employee or agent;
• Premises where the tenant is a listed corporation or its subsidiary;
• Premises located above the first three storeys in a building used for retail purposes; and
• Leases 15 years or longer in duration that impose substantial obligations on the tenant.

Why does it matter?

The Act alters the balance of power between tenants and landlords by imposing a number of obligations on landlords and creating various tenant rights.  In order to understand their rights and obligations, landlords and tenants must know whether their lease is governed by the Act.  Departments and Agencies proposing to grant a lease of retail premises should always check whether an exemption applies.
As property law experts within Government, the VGSO Property Team is well placed to assist you with land use arrangements and other property issues.  For further advice and assistance, please contact:

Anthony Leggiero
Managing Principal Solicitor
9947 1430

Elizabeth Wortley
Senior Solicitor
9947 1433

Foreign Resident Capital Gains Withholding Tax

Sales of certain taxable Australian property made after 1 July 2016 are subject to a new withholding regime introduced by the Tax and Superannuation Laws Amendment (2015 Measures No 6) Act 2016 (Cth).  Under this regime, purchasers are required to withhold 10 percent of the purchase price on all acquisitions of certain taxable Australian property and remit it to the Australian Tax Office (ATO) unless the vendor provides a clearance certificate.

This measure has been introduced to improve compliance with capital gains tax rules by foreign residents, but will have widespread implications for Australian residents involved in property transactions.

When does the measure apply?

The regime applies to contracts entered into after 1 July 2016 by which the purchaser acquires certain taxable Australian real property, including:

• Real property in Australia, including land, buildings, residential and commercial property;
• Lease premiums paid for the grant of a lease over real property in Australia;
• Mining, quarrying or prospecting rights;
• Company title interests; and
• Options or rights to acquire such property or such an interest.

Certain transactions are excluded, including real property interests of less than $2 million, transactions listed on an approved stock exchange, or where the vendor is under external administration or in bankruptcy.

What does this mean for purchasers of property with a market value of $2 million or more?

If the purchaser receives a valid clearance certificate from the vendor, withholding tax is not to be withheld from the transaction and the purchaser can rely on the certificate without making further enquiries.

If the purchaser is not provided with a valid clearance certificate before settlement, the purchaser must withhold 10 per cent of the purchase price and pay it to the ATO on or before the day the purchaser becomes the owner of the asset.  A short grace period applies before interest begins accruing.
Prior to settlement, all purchasers involved in the sale must complete an online Purchaser Payment Notification form, including the details of the vendors and the relevant asset. Once the form is processed, each purchaser will receive a payment reference number, payment slip and barcode.  These are used when making the payment to the ATO via electronic transfer, in person at Australia Post or mailed with a cheque.
There are significant penalties for failing to withhold the required amount, and administrative penalties may also apply.

What does this mean for vendors?

Australian resident vendors of relevant real property will need to apply for a clearance certificate and provide this to the purchaser before settlement to ensure no funds are withheld from the sale proceeds.

Vendors can apply for a clearance certificate at any time via the ATO's online application form.  Where the names of the registered proprietor and the taxpayer are consistent a certificate should be issued automatically within days.  Vendors should apply as early as practicable and check for consistency between ownership and tax records to avoid delays in the process.

A clearance certificate is valid for 12 months from the date of issue and can be used for multiple transactions, provided it is valid at the time the certificate is given to the purchaser.  If there are multiple vendors, each vendor will need to supply a clearance certificate to the purchaser.
Vendors will only receive credit for the tax withheld if the purchaser pays the relevant amount to the ATO.  Vendors should therefore ensure that appropriate contractual mechanisms are in place to cover these new obligations.

Significance to clients

This measure will need to be considered for every transaction involving Australian real property or any entity whose underlying value is principally derived from Australian real property.  The regime has broad application and will impact on a significant number of transactions, including where vendors are in fact Australian residents for tax purposes.

The Law Council of Australia, the Law Institute of Victoria and the Law Society of New South Wales have raised concerns about this initiative in a submission to the Federal Government, specifically that it will generate 'uncertainty, delays and a significant administrative burden' for Australians who purchase real estate with a market value of $2 million or more.
We will keep you informed if the ATO  issues rulings which exempt Australian government departments from the need to:

• obtain clearance certificates when they are a vendor; or
• remit the withholding tax to the ATO when they are a purchaser.

You can find out more on the ATO website.If you would like to discuss the impact on your department or agency, please contact:

Anthony Leggiero
Managing Principal Solicitor
03 9947 1430

Lease vs Licence - What difference does it make? (Part 2)

Based on the public and personal feedback, our blog topic from September 2015 on the differences between leases and licences certainly seems to have been quite topical.

One reader requested that we provide some more examples for Government practitioners of circumstances where a lease or a licence might be appropriate.  Of course, the particular circumstances of the transaction will determine the form of tenure that is appropriate for the intended use of premises.  With that in mind, we provide some further examples of where a lease or licence might be appropriate for the intended use of the premises.

Lease examples

In short, a lease will be appropriate where the tenant requires exclusive use of land and/or premises for the permitted use.  Where government is the tenant, such uses include delivery of long term projects and services, for example prisons, hospitals and police and court house facilities. 

Where government is the landlord, such uses would include:

• commercial or trading purposes where the operator will undertake a fitout and install furniture, computers, etc;
• sensitive and important community services such as the provision of child care facilities; and
• provision of education services, such as by a TAFE institute.

Licence examples

The granting of exclusive possession and other leasehold rights is not necessary for all land uses.  Common examples of where a licence of land may be appropriate include:

• installation of power line infrastructure by an electricity generation company;
• special event licences for community, cultural or sporting events;
• site investigations for development proposals;
• construction licences or licences for the installation of services and utility infrastructure; and
• cutting or taking away fallen or felled trees for domestic use as firewood.

If you would like further advice regarding land use arrangements and other property issues, the VGSO Property Team is well placed to assist you.  Please contact:

Margaret Marotti
Managing Principal Solicitor
9947 1410
margaret.marotti@vgso.vic.gov.au

Anthony Leggiero
Managing Principal Solicitor
9947 1430
anthony.leggiero@vgso.vic.gov.au

Elizabeth Wortley

Senior Solicitor
9947 1433
elizabeth.wortley@vgso.vic.gov.au

Lease vs Licence - What difference does it make?

The State and its agencies own and manage vast tracts of land in Victoria, much of which offers potential economic or other benefits to the private sector.  For example, the State often makes land and buildings available to a business operator for the purposes of running its business or a community group so it can  hold meetings, workshops and/or training sessions.  Alternatively, the State may wish to make land available for use by the private sector in the furtherance of particular significant policy objectives.

Preliminary considerations

Before deciding on the nature of the tenure which your department or agency should grant over a piece of land, it is important to step back and ask a few questions. For example, you should consider:

·         Who wants to occupy the land and for what purpose?

·         Does the Government want to make the land available to achieve a particular policy objective?

·         Does achieving that purpose require exclusive possession or is a lesser form of tenure sufficient?

·         Does the future tenant need to put up the tenure as security for raising capital so they can finance the project?

·         Will the department or agency or third parties need to access the land while it is occupied?

The answers to these questions will assist with determining which form of tenure you should offer to the prospective occupant and the terms and conditions of that tenure.

When is a lease appropriate?

A lease is an agreement between an owner of land and a tenant which grants a right of exclusive possession to the tenant.  This means the tenant can exclude the whole world, including the landlord, from accessing the land for the term of the lease as long as the tenant complies with its obligations under the lease agreement.  Even if a tenant breaches a condition of the lease and risks 'forfeiting' the lease, a leasehold tenant can apply to the Court for the equitable remedy of relief against forfeiture.  If the tenant is successful, the Court will permit the tenant to remain on the land, subject to prompt rectification of the existing breaches and compliance with other conditions.

The rights under a lease will attach to the leased land - if the tenant assigns the lease to a third party, for example if the tenant sells its business, the third party will also enjoy the same right of exclusive possession of the leased premises. 

Another aspect of a lease is that it is capable of being registered on the title to the land.  Registration of the lease also enables registration of any mortgage granted over the leasehold interest.  So if a tenant has granted a mortgage to a bank as security for money borrowed against the lease and the tenant defaults in its mortgage repayments, the bank will be able to access the important statutory powers applicable to a mortgagee in Part IV of the Transfer of Land Act 1958.  These include a mortgagee's power of sale, the power to take possession of the land and a right to seek an order for foreclosure.  As a result, banks may be more willing to provide finance to a tenant with a registered leasehold interest.

These aspects may make a lease an attractive option to someone who wants to operate a business from the premises and needs to raise investment capital for its start up and who also wants the flexibility of later transferring the leasehold interest, along with the business, to a third party. 

Of course, a downside for a tenant is that a higher commercial value is likely to attach to the lease consistently with the powerful bundle of rights held by a leasehold tenant.

When might you grant a licence?

Like a lease, a licence grants a right to a party to access and occupy land subject to the terms of the licence. 

Unlike a lease, the occupant under a licence does not have the right to exclusive possession of the licensed premises - in other words they may have to share occupation with the licensor and third parties or may only be able to use the licensed area at certain times or days.

Another key difference of a licence to a lease is that the rights of a licensee are not assignable to a third party (unless the agreement specifically permits this).  Additionally, a licence interest cannot be registered on title.

Therefore, a licence is likely to be suitable where an occupant needs specific rights to an area of land, water or airspace, but it is not necessary or appropriate for the occupant to have the right to exclude the rest of the world from the premises.  Examples of where licences are commonly used in Government include granting a right to a telecommunications company to install a mobile telecommunications tower on State owned land and allowing community groups to use school buildings and facilities.

As property law experts within Government, the VGSO Property Team is well placed to assist you with land use arrangements and other property issues.  Please contact:

Anthony Leggiero
Managing Principal Solicitor
9947 1430
anthony.leggiero@vgso.vic.gov.au

Elizabeth Wortley
Senior Solicitor
9947 1433
elizabeth.wortley@vgso.vic.gov.au