After much anticipation, the Victorian Parliament has passed the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences)Miscellaneous Amendments Regulations 2020 (Vic) (Amending Regulations).
The amendments extend the operation of the Principal Regulations made earlier this year until 31 December 2020, but also include some significant changes. The Amending Regulations came into effect on 29 September 2020 and do not apply retrospectively unless expressly provided in the regulations. Here is an outline of the key changes:
New definition of Eligible Lease
An eligible lease still requires that the tenant be an SME and a participant of the JobKeeper scheme. However, the requirement to be an employer no longer applies. As was the case under the Principal Regulations, to qualify, the lease must have been entered into before 29 March 2020.
Subsequent ineligibility for JobKeeper
The Amending Regulations have inserted ‘saving provision’ to deal with the impact on tenants who subsequently become ineligible for the JobKeeper scheme.
Firstly, if a tenant has an agreement or applicable orders in place in respect of rent relief, the protections from eviction, rent increases, recovery and reduction of outgoings and ability to reduce operation hours are preserved. Furthermore, in instances where tenants and landlords are yet to resolve rent relief arrangements, the relevant lease remains an eligible lease until an agreement is entered into.
The Amending Regulations clarify that rent relief applies to the ‘gross rent’ and is therefore inclusive of outgoings.
The requirements for requesting rent relief have also been modified. Tenants are still required to provide a statement that the relevant lease is eligible and that the lease is not excluded from the operation of the Amending Regulations. However, the statement must now also include information about the tenant’s decline in turnover associated with the premises. To evidence this decline, tenants can rely on one of the following:
1. Accounting records
2. Business activity statements
3. Statements issued by an ADI or a practising accountant
Crucially, if the lease is an eligible lease, landlords must provide a rent relief minimum which is proportionate to the tenant’s decline in turnover. A landlord’s financial ability to offer rent relief is no longer taken into account.
What about new rent relief requests?
A tenant is entitled to apply for subsequent rent relief if an agreement for rent relief was made before the operation of the Amending Regulations and does not allow for the minimum relief (outlined above) or does not apply until 31 December 2020.
Importantly, the subsequent rent relief only applies from the date the tenant provides a compliant statement and the new request is made. Therefore, all subsequent requests can’t be backdated to 29 March 2020.
Any deferred rent amounts also can’t be requested by the landlord until 31 December 2020. This also includes any rent deferrals that were agreed to before the Amending Regulations came into effect.
Binding orders by the Small Business Commission
As hinted by the amendment to the COVID-19 Omnibus(Emergency Measures) Act 2020, earlier in September, the Victorian Small Business Commission (VSBC) now has the power to order landlords to provide rent relief to tenants.
This is only available if:
· The tenant has given notice to the landlord of application for a binding order
· Neither parties have commenced VCAT or court proceedings
· The VSBC has issued a certificate stating that mediation has failed or is unlikely to resolve the rent relief dispute
The Amending Regulations also require specific material to be provided for an application for mediation, such as:
· The rent relief statement and supporting evidence
· All correspondence between the parties
· Contact information
· Any other information requested by the VSBC
To apply for a binding order, the tenant must apply in writing in the required form and include all subsequent correspondence that was not provided for the purpose of the original mediation.
The key takeaways
The Amending Regulations will provide more clarity and certainty for commercial tenants trying to combat the continual impacts of the COVID-19pandemic. This is achieved through the expanded eligible lease definition, the minimum rent relief entitlement, the saving provisions within the new JobKeeper eligibility criteria and the availability to seek binding orders for unresolved disputes following mediation.
That being said, there is an increased emphasis to provide all the necessary information and evidence in substantiating declines in turnover. It’s therefore paramount for tenants to give thorough consideration to provide true and accurate information to ensure eligibility.
For landlords, it appears that there is less wriggle room in negotiating rent relief amounts for eligible leases. The impact of the extension of the recovery period for deferred rent highlights the requirement to make swift adjustments to forecasted cashflows, which would have been expected under agreements entered into earlier this year. The prospect of binding orders also incentivises landlords to continue to negotiate in good faith (as was already required) and attempt to resolve rent relief disputes to ensure the continuation of the relationship.
As always, if you’d like to learn more about how these changes could impact you as a commercial landlord or tenant, we’re here to help. So please get in touch.