The impact of the COVID-19 pandemic has extended for longer than initially expected and continues to be profound for many small and medium businesses during this current lockdown period. In response, the COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Bill 2020 (Vic) (the Bill) was introduced into Victorian Parliament on 3 September 2020 to amend the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) (the Act) as it relates to commercial and retail leases and licences. The Bill received Royal assent on 22 September 2020. Accordingly, the COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Act 2020 (Vic) (the Extension Act) has now come into effect.
The Act and Eligible Leases
Before looking at how the Act has been amended as a result of the Extension Act, it is important to revisit the purpose of the Act. The Act, which was passed on 23 April 2020, enabled the Governor in Council to make regulations with respect to ‘eligible leases’, which the Act defined as a retail lease, a non-retail commercial lease, a licence, a sublease or an agreement for lease (with some exceptions), which was in effect on 29 March 2020, and under which the tenant:
- is an SME entity, being an entity that had an annual turnover of less than $50 million in the previous financial year or anticipates an annual turnover of less than $50 million in the current financial year (SME Entity Criteria); and
- is an employer that qualifies for and is a participant in the JobKeeper scheme (with the main requirement being the tenant evidence that their turnover has fallen, or will likely fall, by 30% or more compared to a similar period in the previous financial year) (JobKeeper Criteria).
In accordance with section 15 of the Act, the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (Regulations) were passed on 1 May 2020. The Regulations form part of the Victorian Government’s Commercial Tenancy Relief Scheme (CTRS). The Regulations apply to eligible leases from 29 March 2020 to 29 September 2020 (Relevant Period) and provide for the following:
- the landlord and tenant must cooperate and act reasonably and in good faith in all discussions and actions;
- the tenant may request rent relief from a landlord, with the landlord to make an offer of rent relief (up to 100%) within 14 days of the tenant’s request. Such offer must take into account the reduction in the tenant’s turnover, any waiver of outgoings given by the landlord, the landlord’s financial ability to offer rent relief and whether a failure to offer sufficient rent relief would compromise a tenant’s capacity to fulfil the tenant’s ongoing obligations under the lease. Any offer must provide that at least 50% of the rent relief is in the form of a waiver (ie. not to be repaid) with the balance to be a compromise of a reduction, remission or deferral, with any deferral to be repaid over the greater of the remaining lease term or 24 months after the end of the Relevant Period;
- the landlord must consider waiving recovery of any outgoing or other expense payable by a tenant under the lease for any part of the Relevant Period that the tenant is not able to operate their business at the premises;
- during the Relevant Period, the landlord may not increase the rent unless the tenant agrees or the lease is a retail lease and the increase relates to turnover rent;
- the landlord must not require the tenant to pay interest or any other fee or charge in relation to any payment of rent deferred by variation to the lease or an agreement;
- if the tenant reduces its opening hours or ceases to trade during the Relevant Period, it will not be in breach of the lease;
- if the tenant complies with the rent relief process, the landlord must not evict the tenant, recover or re-enter the premises, or have recourse to any security if a tenant does not pay the amount of rent required; and
- the landlord or tenant may apply to the Victorian Small Business Commission (VSBC) for mediation of a dispute concerning the terms of the lease and the effect of the Regulations on these terms.
The Extension Act
The purpose of the Extension Act, as it relates to commercial and retail leases and licences, is predominantly to extend the operation of the Act beyond 29 September 2020, and in turn, extending aspects of the CTRS, specifically the Regulations. The provisions of the Act largely remain the same, however, the Extension Act removes the SME Entity Requirement and the JobKeeper Requirement from the Act and provides for the definition of ‘eligible lease’ to be prescribed by the Regulations. This allows flexibility in the definition of eligible lease, particularly given that the Commonwealth Government may amend JobKeeper as the impacts of the pandemic ease (such as amending eligibility of JobKeeper or terminating such scheme).
The Amending Regulations
On 29 September 2020, as a result of the Extension Act, the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 (The Amending Regulations) were brought into force. The Amending Regulations provide for (amongst other things) the following key changes:
- The CTRS is extended to 31 December 2020. This means that a tenant can make another application for rent relief if an agreement for rent relief has already reached but that agreement does not comply with the Amending Regulations, or the previous agreement does not extend to 31 December 2020. Any new applications for rent relief apply only for the period between the new request for rent relief and 31 December 2020;
- “Eligible lease” is much the same as was defined under the Act, however the requirement that the tenant be an employer has been removed (sole traders being capable of receiving JobKeeper payments);
- The tenant is required to provide in its request for rent relief a statement setting out the tenant's decline in turnover that is associated with only the premises. Whilst this means that internet sales or sales from interstate stores (which are perhaps not as impacted) cannot be into account, losses associated with the tenant’s other stores that may have incurred greater losses similarly cannot be considered. In support of such request, the tenant must now provide either an extract from the tenant’s accounting records, the tenant’s Business Activity Statement, statements issued by an Authorised Deposit-Taking Institution or a statement by a practising accountant;
- On request by a tenant for further rent relief, the landlord’s offer must now be at a minimum proportional to the decline in the tenant's turnover associated with the premises, with a waiver of at least 50% of the total rent relief offered. Further, the requirement that the landlord’s offer of rent relief consider the landlord’s financial ability to offer rent relief has been deleted;
- A landlord cannot request the payment of any deferred rent until 31 December 2020;
- The moratorium on termination during the operation of the CTRS has been expanded to prevent landlords terminating for non-payment of outgoings (previous restricted to non-payment of rent and ceasing to trade or reducing hours in contravention of lease provisions); and
- The VSBC now has the power to make a binding determination as to the rent relief the landlord is to provide where the VSBC is satisfied that the landlord has either not responded to the tenant’s application for rent relief or has not engaged in mediation in good faith. A landlord or tenant may apply to VCAT for a review of any VSBC decision.
Relief for landlords
The Commercial Landlord Hardship Fund
Whilst the recent legislative changes are heavily geared towards providing relief for tenants, the Victorian Government has introduced the Commercial Landlord Hardship Fund (the Fund) to provide relief for eligible landlords.
The Fund has been created in recognition of private landlords who may not have the capacity to provide rent reductions to their tenants under the CTRS.
Eligible private, individual and joint-owner landlords who are facing financial hardship after reducing rent for their tenants under the CTRS requirements will be able to apply for a grant of up to $3,000 per tenancy. The Fund is now open for applications until 16 October 2020 (being 8 weeks from 21 August 2020), or until funds are exhausted, whichever is earlier.
To be eligible for a grant, a landlord must:
- be a sole or joint owner with other private individuals of a leased commercial property;
- have provided the tenant with rent relief of at least 30% of total rent payable, of which half or more is waived for the equivalent of a minimum three-month period; and
- have an individual total taxable landholding under $1 million as evidenced by a 2020 Land Tax Assessment or 2019-20 Municipal Rates Notice. This applies to all of the landlord’s properties excluding their principal place of residence.
Land Tax relief
The State Revenue Office (SRO) have stated that landlords may be eligible for a 25% or 50% reduction on their 2020 land tax assessment if they have:
- provided tenants impacted by the coronavirus pandemic with rent relief; or
- have been unable to secure a tenant because of the pandemic.
Owner-occupiers of commercial properties may also be eligible for a 25% reduction in land tax and a deferral of payment up to 31 March 2021 on their 2020 land tax assessments.
So, whether your client is a commercial landlord or a tenant, if you require advice as to the applicable rent relief provisions or government assistance schemes, our Property team at Partners Legal are available to assist you. Please do not hesitate to email the Head of Property, Geoff Manolitsa, or call 0437 573 894.