On 1 May 2020 the Victorian Government introduced the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations), bringing welcome relief to financially stressed commercial tenants as well as guidance for landlords. These regulations will apply to leases that exist on 29 March 2020 and will have effect until September 2020.
These regulations intend to lessen the effects of the COVID-19 measures taken as well as acting as a mechanism for dispute resolution. The overarching aim and purpose in introducing these regulations is best summarised in regulation 8(2):
“a landlord and tenant under an eligible lease must cooperate and act reasonably and in good faith in all discussions and actions associated with matters to which these Regulations apply.”
Pursuant to the regulations, you are eligible if you meet the following criteria:
a tenant carrying on a business;
a SME entity;
eligible for and participating in JobKeeper; and
not part of a broader group with aggregate turnover of more than $50 million.
In order to receive rental relief, tenants must substantiate their eligibility and particularise their financial position in writing. In accordance with the spirit of the regulations, tenants and landlords must negotiate rental relief in good faith. Good faith simply means parties are to act fairly, honestly and with candour in dealing with each other.
Within 14 days landlords must make an offer to the tenant, taking into account certain prescribed factors (e.g. reduction in tenant’s turnover) as well as considering the waiving of outgoings if a tenant is unable to operate their normal business/reduced hours. At the same time, tenants must comply with their lease obligations to the best of their ability. That is, whilst a landlord cannot evict tenants if they are unable to pay due to loss of business or reduced trading hours, tenants must pay the prescribed amount in accordance with the rental relief variation.
Tenants and landlords should both note that there is a freeze on rent review between 29 March 2020 and 29 September 2020. Deferred rental payments do not need to be paid until the end of or after 29 September 2020.
If a dispute arises and the parties are unable to reach agreement, both parties are able to refer the matter to the Small Business Commission for mediation and failing that then to VCAT.
On a final note, we recommend that whatever rental relief variation is agreed to it should be recorded in writing and that the team at SMR Legal is ready to assist you in this regard.