The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 (Vic) (Amending Regulations) were passed on 29 September 2020.
When does the Prescribed Period end?
The Prescribed Period is now extended until 31 December 2020 (it previously ended on 29 September 2020).
Changes to definition of ‘Eligible Lease’
The Tenant still has to be an SME entity.
The Tenant has to be entitled to JobKeeper, but the requirement to be participating in JobKeeper has been removed.
If the Tenant ceases to be on JobKeeper, but was on JobKeeper when its request for rent relief was made, the Lease remains an Eligible Lease.
For what period can a Tenant request rent relief for?
New Rent Relief Request: The period of any new request for rent relief starts from the date of the new rent relief request and ends on 31 December 2020.
Existing Rent Relief Agreement: Tenants with existing rent relief agreements with Landlords should immediately submit their new compliant requests for rent relief to the Landlord. This applies despite the current state of any negotiations with the Landlord regarding rent relief.
Where the Tenant has an existing rent relief agreement, the Tenant can make another application for rent relief if the existing rent relief agreement does not satisfy the Minimum requirement (discussed below) or does not apply until 31 December 2020. However, the period for the new rent relief agreement will be from the date of the Tenant’s request until 31 December 2020.
No Existing Rent Relief Agreement: Tenants who do not have existing rent relief agreements with Landlords should immediately submit their compliant request for rent relief to the Landlord. This applies despite the current state of any negotiations with the Landlord regarding rent relief.
All Tenants can continue to apply for further rent relief if their circumstances change. However, any further rent relief will only apply from the date of a Tenant’s application.
Rent Relief and Proportionality – what about the Landlord’s financial ability to offer rent relief?
At a minimum a Landlord’s offer of rent relief must be proportional to the decline in Turnover associated with just the Premises.
The Amending Regulations have made it clear that a coronavirus economic response payment is not part of Turnover (ie JobKeeper payments do no need to be included in Turnover).
The requirement in the Regulations whereby the Landlord’s offer of rent relief must take into the Landlord’s financial ability to offer rent relief, has been revoked.
However, the offer of rent relief must still take into account all circumstances of the Eligible Lease.
Rent relief must continue to relate to 100% of the rent payable, with 50% waived, unless otherwise agreed.
The Landlord still has 14 days to respond to a request for rent relief.
What Tenants have to provide
With the Tenant’s request for rent relief, the Tenant must also submit:
- A statement from the Tenant:
- that its lease is an Eligible Lease (and is not excluded from the operation of the Regulations by reason of the corporate grouping or agricultural use exclusions); and
- which sets out the Tenant’s decline in Turnover, as a whole percentage and calculated consistently with the actual decline in turnover test applying to the Tenant and in relation to the most recent turnover test period applying to the Tenant, referable only to the Premises.
- Information that evidences that the Tenant:
- is an SME entity;
- is an entity that is entitled to JobKeeper, including the Tenant’s ATO JobKeeper receipt number and a copy of the Tenant’s most recent notice to the Commissioner of Taxation under the JobKeeper rules;
- information that evidences the Tenant’s decline in Turnover, including, at least one of the following:
- Extracts from the Tenant’s accounting system;
- The Tenant’s BAS relevant to the Turnover period;
- Statements from an authorised deposit-taking institution (ADI) in relation to the Tenant’s account; or
- A statement prepared by a qualified practising accountant.
Moratorium on evictions, drawing down on security, fixed increases of rent, trading hours
These continue to apply where there is a rent relief agreement in place which is being complied with by the Tenant. This now applies to where the Tenant is also not paying outgoings (as well as not paying rent).
The rent relief must apply to the gross rent i.e. outgoings cannot be removed from the gross rent figure before the rent relief is applied.
The prohibition on fixed rent increases and enforcing positive trading clauses/hours remains.
Payment of Deferred Rent – when can re-payment start?
The payment of deferred rent cannot start until 31 December 2020, which applies to rent relief agreements documented by a variation of lease or other agreement entered into before the Amending Regulations were passed.
The prohibition on charging Tenants interest or fees on rent deferred remains.
Small Business Commissioner (SBC) Powers
The SBC has power to make a Binding Order in favour of a Tenant on a rent relief application where the Landlord has either:
- failed to respond; or
- has not negotiated in good faith (which includes failing to respond to a dispute notice),
and where proceedings have not been issued at VCAT.
New Application forms for mediation of disputes for rent relief will be uploaded to the SBC website.
Where the SBC issues a certificate (a regulation 20A certificate) where the mediation has failed or is unlikely to be resolved, the certificate can include that the Landlord has failed to respond to the Tenant’s request for rent relief or has failed to negotiate in good faith.
Process for a Binding Order
A Binding Order is an order ‘directing landlords under eligible leases to give or agree specified rent relief to tenants under eligible leases’.
A Tenant can apply for a Binding Order:
- if the SBC has issued a certificate; and
- the Tenant has submitted the required Application form.
The Landlord will be notified and given the opportunity and up to 5 Business Days to submit a written submission and any materials the Landlord considers the Tenant has failed to provide to the SBC. The Tenant can be asked to provide evidence to the SBC that the Tenant has taken reasonable steps and has acted in good faith to seek an agreement on rent relief with the Landlord.
There is no hearing and the Binding Order is made based on what the parties have submitted to the SBC.
The SBC can sever, divide or combine matters that make up or comprise a rent relief dispute.
The Binding Order can provide for rent waived, rent referred and payment of rent deferred over the greater of the balance of the Term of the Lease and 24 months.
A Landlord or Tenant can apply for a revocation or amendment of a Binding Order. The SBC can, of its own accord, amend a Binding Order.
Either party can apply to VCAT for review of a Binding Order or a determination as to whether the Landlord has complied with the Binding Order.
VCAT has the power to review the decision of the SBC to make a Binding Order on application by either the Landlord or the Tenant. The conduct of the Landlord after the Binding Order has been made can be considered by VCAT.
Further Land Tax Relief
The SRO has made changes regarding how land tax relief will be determined for multi-tenanted properties – Landlords will be able to make a single application for land tax reduction of 25% for the whole property rather than just that part of the property occupied under an Eligible Lease where the Tenant has received rent relief.
An additional 25% land tax relief can be accessed (i.e. total land tax relief of 50% may be available) on the value of the entire property provided that the Landlord has reached rent relief agreements with the majority of its Tenants and has provided sufficient rent relief.
My Summary of the Regulations, amended by these Amending Regulations is contained in this link:
Please click here to view the e’news “COVID-19 Victorian Regulations Summary”
This article was written by Nicole Maxwell, Partner and Natalie Gnoato, Associate.