Have you been able to reach an agreement with your landlord or tenant about the appropriate level of rent relief that should be applied during the COVID-19 pandemic period? If you haven’t, you’re not alone. It’s a complex and emotional issue, and many people feel like they’re not sure what to do next.
But do not fear – we’re here to help.
Firstly, it’s important to note that a deadlock is not surprising. Both parties are sitting on the opposite sides of the fence when it comes to negotiating rent relief. Landlords want to maximise their income and tenants want to minimise their expenses. Both parties are looking to reduce the blow from COVID-19.
Fortunately, there’s an existing dispute mechanism process that has been tasked with the job.
COVID-19 and Commercial Leases: The Regulations
On 1 May 2020 the Victorian Government issued the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic), which sought to implement the principles contained in the National Cabinet Mandatory Code of Conduct.
These regulations provide a framework by which rent relief can be sought by tenants from their landlords. The regulations are detailed on our BlueRock COVID-19 Relief Options web page.
In short and as a quick recap, landlords must offer rent relief to eligible tenants. The extent of rent relief that must be offered is to:
- relate to up to 100% of the rent payable under the lease during the relevant period
- provide that no less than 50% of the rent relief offered by the landlord be in the form of a waiver of rent (unless a landlord and a tenant otherwise agree in writing)
- apply for the period of 29 March 2020 to 29 September 2020
- take into account the reduction in a tenant's turnover during the relevant period.
The offer made by the landlord must also take into account:
- any waiver given
- whether a failure to offer sufficient rent relief would compromise a tenant's capacity to fulfil the tenant's ongoing obligations under the eligible lease, including the payment of rent
- a landlord's financial ability to offer rent relief, including any relief provided to a landlord by any of its lenders as a response to the COVID-19 pandemic
- any reduction to any outgoings charged, imposed or levied in relation to the premises.
The Lease Dispute Resolution Process
As you can see from the above scenarios, there is no exact science when it comes to establishing what the precise level of rent relief offered to a tenant should be, and there is much scope for disagreement between the tenant and the landlord. This has been recognised in the regulations, which actually set out a process for circumstances where an agreement can’t be reached.
Here’s how it works. Tenants and landlords that fall within the application of the COVID-19 regulations are able to refer a dispute to the Victorian Small Business Commission (VSBC), directly through the VSBC website.
Once an application is made, a case officer will contact you and your landlord to try to resolve your rent dispute early on and, if needed, arrange a free mediation session. This session will be conducted by an experienced, independent mediator via video or telephone and in most cases you will be entitled to be represented by a lawyer, if you want one.
If you are able to reach an agreement with the landlord during the mediation session, you are both able to enter into binding Terms of Settlement.
If agreement cannot be reached at mediation, either party can commence proceedings in VCAT or a Court to determine the dispute. In order to issue proceedings, the landlord or tenant must first obtain a certificate from the Small Business Commission certifying that mediation has failed or is unlikely to resolve the dispute.
Our Recommendation for Rent Relief Disputes
While our recommendation to clients is to try and reach an agreement; if none can be reached, we recommend that you apply for mediation with the VSBC as soon as possible because there is likely to be a high demand for mediation in the current environment.
If you need assistance in dealing with any of your leasing issues in the COVID-19 world, either as a landlord or a tenant, please feel free to reach out to us. We are currently assisting a large number of clients and with our knowledge of the regulations and the National Code, we have been able to achieve a number of successes.