Last updated: 14 October 2020

COVID-19 Rent & Termination Arrangements by State/Territory

The National Cabinet announced the Mandatory Code of Conduct for Commercial Tenancies on 7 April 2020, which will be implemented by each of the States and Territories.

Across Australia, the States and Territories have moved to announce proposals for the implementation of the Code as well as proposals in relation to residential tenancies and relief packages to alleviate the impacts of COVID-19 on landlords and tenants. Our high-level summary of the implemented or announced changes will evolve as governments implement those arrangements.

The National Cabinet Mandatory Code of Conduct for commercial leasing was released by the Prime Minister on 7 April 2020. The purpose of the Code is to set out good faith leasing principles which will apply to commercial tenancies (retail, office and industrial).

Who does it apply to?

The Code applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic, where the tenant is eligible for the JobKeeper programme and has an annual turnover of up to $50 million (SME Tenant).

The turnover threshold will be applied to franchises at the franchisee level and in respect of retail corporate groups at the group level (rather than the retail outlet level).

However, while not mandatory for tenancies which do not meet the JobKeeper eligibility and turnover criteria, landlords are encouraged to apply the Code to all leasing arrangements for affected businesses, having fair regard to the size and financial structure of those businesses.

How long does it apply for?

It applies from a date after 3 April 2020 (to be defined by each jurisdiction) for the period during which the JobKeeper programme is operational (i.e. until the end of the pandemic period). The JobKeeper programme is currently in place for 6 months, subject to any appropriate extension or reduction.

How will it be enforced?

The Code will be given effect through relevant state and territory legislation or regulation as appropriate. There is no detail yet regarding the timing or language of such legislation or regulation. It is possible that regulations (or declarations in some jurisdictions) will be made in relation to retail leases for the enforcement of the code of conduct for retail tenancies, but there is no comparable existing legislation for office or industrial leases and so it remains to be seen how such legislation will work.

It is also intended that there will be State- or Territory-based Industry Code Administration Committees, comprising representatives from relevant industry bodies representing landlord, tenant and SME interests, with an independent chair appointed by the relevant State or Territory Government. The role of the committee will be primarily to encourage application of the Code.

What are the principles?

The overarching principles set out in the Code include:

  • landlords and tenants share a common interest to preserve the lease and facilitate the resumption of normal trading activities;
  • landlords and tenants are required to negotiate and work towards achieving mutually satisfactory outcomes and negotiate in good faith;
  • landlords and tenants will act in an open, honest and transparent manner and provide sufficient and accurate information to enable the parties to reach agreement consistent with the Code;
  • the arrangements must be proportionate to the impact of the COVID-19 pandemic on the tenant;
  • landlords and tenants will assist each other in their respective dealings with other relevant third parties such as government, utilities and financiers in order to achieve outcomes consistent with the Code;
  • landlords must not seek to permanently mitigate their risk in relation to default in negotiating the temporary arrangements; and
  • each lease must be dealt with on a case-by-case basis having regard to the hardship suffered by the SME tenant (including any insolvency) and the terms of the lease.

What can be agreed between the landlord and the tenant?

The Code provides that the following leasing principles should be applied as soon as practicable on a case-by-case basis:

  • landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period);
  • tenants must continue to comply with the lease terms, subject to any temporary arrangements agreed with the landlord. A material breach will mean that the tenant is not protected under the Code;
  • landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals of up to 100% of the rent ordinarily payable, on a case-by-case basis, based on the reduction in the tenant's trade for the pandemic period and a subsequent recovery period;
  • rental waivers must constitute no less than 50% of the total reduction in rent and may be greater where necessary to allow the tenant to fulfil its ongoing obligations, but regard must also be had to the landlord's financial ability to provide such waivers. Tenants may waive the 50% minimum waiver requirement;
  • any remaining relief may be in the form of a waiver or a deferral;
  • deferred rent must be paid over the balance of the lease term, but if the balance of the lease term is less than 24 months, then the tenant may pay the deferred rent over a 24 month period, commencing after the end of the pandemic period (i.e. deferred rent could continue to be paid after the lease expiry);
  • any reduction in statutory charges or insurance costs incurred by the landlord will be passed on to the tenant in the appropriate proportion under the terms of the lease;
  • if the landlord receives any benefit due to the deferral of loan payments by its financier, the landlord should seek to share that benefit with the tenant in a proportionate manner;
  • landlords should seek to waive recovery of any other expense (such as cleaning costs or marketing levies) or outgoings payable by a tenant during the period the tenant is not trading and landlords may reduce services provided to the premises in these circumstances;
  • if the agreement between the landlord and tenant requires any repayments, then the repayment should be made over an extended period of time and should not commence until the earlier of the end of pandemic period or existing lease expiry, and taking into account a reasonable recovery period;
  • no fees or other charges should accrue on waived or deferred rent;
  • no interest is payable on waived rent although interest may accrue on deferred rent provided it is not punitive;
  • landlords must not draw on a tenant's security for the non-payment of rent during pandemic period or a reasonable recovery period;
  • tenants should be given the option to extend their lease term for a period equivalent of the rent waiver and/or deferral period;
  • landlords will not apply rent increases (except for retail leases based on turnover rent) during the pandemic period; and
  • tenants will not be in breach of the lease if they reduce opening hours or cease to trade during the pandemic period.

These principles offer a starting point for landlords and tenants when seeking to negotiate rent relief due to COVID-19. While they are binding on leases with SME Tenants, they also provide good guidance for landlords seeking to provide relief and for other commercial tenants experiencing hardship.

What if no agreement is reached?

If landlords and tenants cannot reach agreement, the matter may be referred by either party to applicable leasing dispute resolution processes for binding mediation. It is unclear what will happen if the parties cannot reach agreement at mediation; presumably there will be a right to escalate the matter through the relevant Courts and tribunals. Alternatively, the "binding mediation" may take the form of an arbitration where the arbiter determines the resolution without a further escalation regime.

Landlords and tenants must not use mediation to prolong or frustrate the process.

How will it work in practice?

It is intended that landlords will agree bespoke, temporary agreements with each SME Tenant documenting the rent relief and which takes into account the particular circumstances on a case-by-case basis.

Landlords and tenants who are not bound by the Code can use the principles set out in the Code as a framework for agreeing and documenting any relief which may be necessary and appropriate for those leases.

To demonstrate hardship, tenants will need to provide "sufficient and accurate information", which, as specified in the Code, includes information generated from an accounting system and information provided to and/or received from a financial institution. See here for a suggested list of the sorts of information which tenants may be required to provide.

Case study

The tenant has experienced a 60% reduction in turnover since 1 March, attributable to COVID-19. The tenant's usual turnover is less than $50 million. The lease is therefore subject to the mandatory code. The tenant seeks rent relief from the landlord and provides relevant information to support its position.

In accordance with the Code, the landlord and the tenant agree:

  • 30% waiver of rent during the pandemic period;
  • 30% deferred rent to be repaid over the remaining three years of the lease term;
  • tenant will continue to pay 40% of the rent during the pandemic period;
  • the landlord will not terminate the lease due to non-payment of rent or call on the bank guarantee; and
  • a fixed rent increase which was scheduled to take place on 1 May will not occur.

This agreement complies with the Code because:

  • the total cash flow relief is proportionate to the loss in turnover;
  • half the rent relief is in the form of a rent waiver with the remainder as a rent deferral;
  • there is a moratorium on termination and calling on security during the pandemic period; and
  • the scheduled rent review during the pandemic period will not take place.

What is the difference between a waiver and a deferral?

A waiver means the amount of rent payable is waived and may not be recouped by the landlord at a later time. A failure to pay the waived rent will not be a breach by the tenant.

A deferral means the amount of rent payable is deferred and must be paid by the tenant at a later time. A failure to pay the deferred rent at the later time would be a breach by the tenant.

What next?

We will need to see the terms of the relevant State- and Territory-based legislation to understand the full implications of the Code. However, the Code will enable parties to commence negotiating appropriate rent relief in line with the principles set out in the Code.

See here for the types of matters which parties could consider including in their agreements.

Current position as at 16 September: On 11 May 2020 the Leases (Commercial and Retail) COVID-19 Emergency Response Declaration 2020 (No. 1) came into force by way of Disallowable Instrument DI 2020-92. This was extended by Leases (Commercial and Retail) COVID-19 Emergency Response Declaration 2020 (No. 2) which comes into effect on 28 September 2020 and will expire on 31 January 2021 (unless extended further).

Eligibility: For the Declaration to apply, an impacted tenant must have committed a prescribed breach (see below) during the prescribed period (between 28 September 2020 and 31 January 2021). The provisions of the earlier declaration continue to apply where tenants have committed a prescribed breach between 1 April 2020 and 27 September 2020. The Declaration does not apply to lease agreements entered into from 7 April 2020.

Eviction bans: The landlord is prevented from issuing a termination notice or taking prescribed action (such as eviction of the tenant, exercising a right of re-entry or seeking damages) unless the landlord has first engaged in good faith negotiations with the tenant - see negotiation requirements, as set out below.  

Negotiation requirements for rent arrangements: The Declaration places an obligation on a landlord to negotiate in good faith with an impacted tenant that has committed a prescribed breach under a prescribed lease. Negotiations must have regard to the leasing principles contained in the National Cabinet Mandatory Code of Conduct.  There is nothing preventing a landlord and a tenant from engaging in good faith negotiations during the prescribed period, but there is no mandatory requirement to do so under the Declaration until the impacted tenant has first committed a prescribed breach.  An impacted tenant is a tenant that has qualified for the JobKeeper program at any point during the prescribed period, and has an annual business turnover of less than $50 million in the 2018-2019 financial year.  An impacted tenant commits a prescribed breach where they fail to pay rent, outgoings or other amounts due under the prescribed lease or to operate the business during the hours required under that lease.

Additional relief: On 10 September 2020 the Rates (Commercial Land) Exemption 2020 (No. 3) commenced. The Instrument revokes the previous exemptions (No. 1 & No. 2). The Instrument provides a rates exemption for eligible owners of commercial land with an average unimproved value (AUV) of $2 million or less, and to owners of units on commercial land, where the AUV of the units (AUVU) is $2 million or less.. This exemption is available if the owner, or a business tenant, operating a business on the land has suffered a turnover reduction of at least 30% due to the effect of COVID-19. The affected owner operating a business on their land is eligible for a rates exemption of up to 80% per quarter (maximum $8,000). The owner with affected business tenants operating on their land is eligible for a rates exemption of up to 50% of the total value of the reduction in rent for that quarter ($8,000). An eligible owner is entitled to more than one exemption per property, up to the applicable cap. The Instrument applies to each unit of a building with multiple commercial units with an AUVU of $2 million or less. The exemption applies for Q4 2019-2020, Q1 2020-2021 and Q2 of 2020-2021.To be eligible for exemption in Q2 of 2020-2021, eligible owners must apply by 31 December 2020.

The Exemption interacts with the Declaration. As part of the rates exemption application, commercial and retail owners will be required to demonstrate that they have negotiated in good faith with their tenants, and have abided by the Declaration and the Code of Conduct.  The ACT Government has indicated that this administrative requirement must be met to progress an application for rates exemption.

This Instrument does not affect the operation of the fixed charge rebate of $2,662 for Q4 2019-2020 under the Rates (Commercial Land) Exemption 2020 announced on 14 April 2020 [NB: No land tax on commercial properties in the ACT – land tax is effectively included in rates].

What's next?: Further details will be provided regarding any changes or additions to the stimulus package.

More information:

Current position as at 1 October 2020: Retail and Other Commercial Leases (COVID-19) Regulation 2020 was made with respect to retail and commercial leases on 24 April 2020. Measures announced in relation to land tax relief. Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2020 effective as at 3 July 2020 (Amendment) clarifies some of the uncertainties in the NSW Regulation, particularly whether certain clauses are limited in application to "impacted lessees" or apply to commercial and retail leases where the lessee is not an impacted lessee. While the NSW Regulation was initially set to expire on 24 October 2020, Treasury announced on 23 September 2020 that the NSW Regulation will be extended until 31 December 2020. The extension has not yet been legislated.

Eligibility: The NSW Regulation applies to "commercial leases", being a retail shop lease (as defined in the Retail Leases Act 1994) and any agreement relating to the leasing of premises or land for commercial purposes. Leases entered into after 24 April 2020, other than a lease entered into by means of an option to extend or renew on the same terms and leases under the Agricultural Tenancies Act 1990 are not covered by the NSW Regulation.

A lessee is eligible for relief if the lessee qualifies for the JobKeeper Scheme and had turnover for the 2018-2019 financial year which was less than $50 million:

  • if the lessee is a franchisee, in relation to the turnover at the subject premises;
  • if the lessee is a corporate member of a group (ie. related bodies corporate), in relation to the turnover of the group; or
  • in any other case, the turnover of the business conducted by the lessee.

Turnover includes turnover from internet sales or services.

Eviction and rent increase bans: Lessor must not exercise its rights under the lease, including its rights to terminate or recover possession, for non-payment of rent, outgoings or for not opening for business for the specified hours during the 6 month period from 24 April 2020. The landlord must not increase the rent for the 6 month period from 24 April 2020. The 6 month period specified in relation to these rights will be extended out to 31 December 2020 in line with NSW Treasury's announcement on 23 September 2020.

Negotiation requirements for rent arrangements: A lessor must not take action for a failure to pay rent unless the lessor has negotiated the rent and other terms of the commercial lease. The negotiation must be in good faith and have regard to the economic impacts of the COVID-19 pandemic and the leasing principles set out in the Code.

Additional relief: If a lessee is required to pay land tax, statutory charges or insurance under the lease and the amount payable by the lessor is reduced, the lessee is exempted from the obligation to pay those amounts under the lease in the same proportion as the reduction received by the lessor.

Announced: land tax concession of up to 25% for current year and deferral of outstanding payments for 3 months for eligible landlords if they pass savings on to tenants.

Key changes made by the Amendment: The Amendment introduced changes to the Regulation which:

  1. clarify that the obligation to renegotiate rent and other lease terms in good faith before taking "prescribed action" applies to impacted lessees only;
  2. require a lessee to establish that they are an impacted lessee by giving the lessor:
    • a statement to the effect that the lessee is an impacted lessee; and
    • evidence that the lessee is an impacted lessee;
  3. clarify that the Regulation which deems there to be no breach of a lease due to an act or omission of a lessee required by law in response to the COVID-19 pandemic applies to impacted lessees only.

The changes mentioned in (a) and (b) above apply to renegotiations that have commenced but not been completed prior to commencement of the Amendment but do not extend to a matter for which proceedings have been commenced.

More information:

Current position as at 14 October 2020: Legislation was enacted on Friday 24 April (with effect from 21 April 2020) which enables the Minister to issue during the Emergency Period (initially 18 March 2020 to 25 June 2020 and subject to any further extensions) "modification notices" affecting leases and tenancies arrangements. A modification notice may affect tenancies arrangements which would not otherwise be subject to the provisions in the Law of Property Act 2000 and Business Tenancies (Fair Dealings) Act 2003 (NT Tenancies Legislation). The Business Tenancies COVID-19 Modification Notice (Business Tenancies Modification Notice) was gazetted on 28 April 2020, with effect from 18 March 2020. The Business Tenancies Modification Notice was most recently extended to 23 December 2020 by notice entitled "Extension of Operation of Declaration of Public Health Emergency" dated 23 September 2020 and published in Gazette S48 of 23 September 2020.

Eligibility: Announced: applies to tenants suffering "substantial hardship due to the coronavirus crisis". Further details of the eligibility criteria may be set out in a future gazetted modification notice, noting that the Business Tenancies Modification Notice did not set out any additional eligibility threshold requirements.

Eviction and rent increase bans: The legislation does not impose a complete moratorium on actions for possession by a landlord. Instead, the Business Tenancies Modification Notice requires that a landlord must engage in a minimum period, of at least 30 business days, of good faith negotiation with a tenant to allow the tenant to remain in the premises before the landlord issues a notice to quit premises. However, landlords are not required to negotiate prior to issuing a quit premises notice to a tenant if a drug premises order has been made in respect of the premises, or the landlord has a reasonable belief the tenant has engaged in or intends to engage in illegal conduct on the premises, or has caused or will cause substantial damage to the premises in breach of the business lease.

Applications for re-entry may be made to the court of competent jurisdiction (Supreme Court’s jurisdiction amended to a monetary amount in excess of $200,000). For applications made to the Local Court (claims of $2000,000 or less), alternative dispute provisions will apply. The Business Tenancies Modification Notice also sets out the cost implications of any application for a warrant of possession made during the emergency period. The party that will be ordered to carry the costs of the application on a standard basis depends on the behaviour of the parties, and the merits of the application.

Negotiation requirements for rent arrangements: Announced: requirement to negotiate in accordance with Code. Landlords who negotiate changes to arrangements may be eligible for payroll tax and utilities charges relief, and the Business Tenancies Modification Notice requires 30 business days of good faith negotiation prior to a notice to quit premises being made unless an exception applies. However, the Business Tenancies Modification notice is silent on matters such as the subject matter of negotiations, information to be provided by the parties to enable negotiations, etc.

Additional relief: Payroll tax and utilities charges relief.

What's next?: Further modification notices setting out the details of additional measures to be implemented may be gazetted in the future.

Current position as at 14 October 2020: Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld Regulation) commenced on 28 May 2020 and were subsequently amended by the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Amendment Regulation 2020 (Amendments) on 29 September 2020.

Eligibility: The Qld Regulation applies to a retail shop lease under the Retail Shop Leases Act 1994, or other leases under which the leased premises are to be wholly or predominantly used for carrying on a business. This will include commercial leases and extends to some franchise arrangements.

On commencement, the Qld Regulation applied to "affected leases" for the duration of the "response period", being the period from 29 March 2020 to 30 September 2020. The Amendments have extended some (but not all of the legislative protections) to an "extension period", which runs from 1 October 2020 to 31 December 2020.

An "affected lease" during the response period is:

  • a lease that is binding as at 29 March 2020;
  • for an SME entity (ie. a not-for-profit body or an entity, where its previous financial year or expected current financial year's turnover is less than $50 million); and
  • who is eligible for the JobKeeper Scheme.

During the extension period, to be an "affected lease" the test is heightened and the tenant must be eligible for the updated JobKeeper scheme which applies for the period 28 September 2020 to 4 January 2021. The JobKeeper scheme for this period requires (amongst other things) tenants to show an actual reduction in turnover for July to September 2020 when compared to the same quarter in 2019. It is no longer sufficient for tenants to "anticipate" a reduction in turnover, as was the case initially. 

Eviction and rent increase bans: Rent increase ban for the duration of the response period and the extension period for affected leases. Rent reviews can be carried out during the response period and extension period, but can only take effect from 1 January 2021 (or 1 October 2020 for leases which do not qualify during the extension period). The default position is that a landlord under an affected lease must not take a "prescribed action" against the tenant based on a failure by the tenant to pay rent or outgoings during the response period or to remain open during required business hours, unless an exception applies. "Prescribed actions" include terminating a lease or taking eviction action, initiating court or tribunal proceedings to exercise or enforce a right by the landlord under the lease, claiming damages or enforcing a right of the landlord under the lease.

Negotiation requirements for rent arrangements: All parties to an "affected lease" will be required to negotiate a variation of the lease, upon the request of one party to the lease. Separate requests may be made for the response period and the extension period. Following the request, parties must share sufficient information related to the negotiation as soon as practicable. Within 30 days of receipt of sufficient information, the landlord must offer the tenant a reduction in the amount of rent payable, and any other proposed changes to the lease conditions.

For the response period, any rent relief offered must provide at least a 50% complete waiver in rent, and any rent deferrals cannot be required to be paid prior to 1 October 2020 and must be paid off over a period of 2-3 years (with no interest accruing on deferred rent).

For the extension period, a landlord is not required to offer a waiver in rent (though nothing prevents tenants seeking a waiver) and the rent relief may be deferred in full (with repayments to be made over 2-3 years with no interest accruing on the deferred rent). Bank guarantees may be automatically retained by the landlord until the rent deferral repayment period ends. Following the receipt of the offer, the parties may then continue to negotiate until either agreement is reached or the matter is referred for mediation.

The Amendments clarify that the deferral of rent repayments will be separated and that repayment of the deferrals for:

  • the response period may begin on 1 October 2020 and may end 2-3 years from this date; and
  • the extension period may being on 1 January 2021 and may end 2-3 years from this date.

Legal action in a court or tribunal commenced by landlords between 29 March 2020 and 28 May 2020 for a "prescribed action" must be put on hold until after 30 September 2020 for those leases that cease to be an affected lease on 1 October 2020 and until 31 December 2020 for leases that remain affected leases on 1 October 2020. During either the response period or the extension period, if parties to an affected lease cannot reach agreement by way of negotiation, then either party may submit a Dispute Notice to the Office of the Small Business Commissioner. The Commissioner will then appoint a mediator, who will formally mediate the dispute in accordance with the procedure set out in the Regulation. A person may only apply to QCAT for relief after the mediation process has been completed or if a settlement agreement is breached by parties to it.

Additional relief: Announced: 25% land tax discount for the 2019/2020 and 2020/2021 assessment year and a 3-month deferral of land tax liability for the 2020/2021 assessment year and a waiver of the 2% land tax foreign surcharge for foreign entities for the 2019/2020 assessment year. The land tax rebate is for eligible properties only and applications need to be made by 31 October 2020 for the 2019/2020 assessment year and by 26 February 2021 for the 2020/2021 assessment year. A land tax rebate will only be provided if the landlord has given rent relief to its tenant or has been unable to find a tenant due to COVID-19 impacts and it also complies with Qld COVID-19 leasing principles for all tenants (which are separate leasing principles from the Mandatory Code of Conduct and apply to all tenants).

More information: Greater clarity for Queensland landlords and tenants: the long-awaited COVID-19 Regulation is now in force

Current position as at 26 June 2020: Legislation passed and Regulation in force

Eligibility: Regulation applies to "affected lessee", being a tenant facing financial hardship with turnover less than $50 million. Deemed to be facing financial hardship if tenant eligible for JobKeeper Payments. Reduction in turnover is also relevant. The Bill will also allow the Governor to make a regulation governing any commercial lease, regardless of the financial hardship of the tenant

Six-month ban (ending on 30 September 2020) on rent increases and taking any prescribed action for a breach of the lessee consisting of rent and outgoings arrears, or failure to trade and other prescribed defaults. This does not include a ban on taking a prescribed action in respect of a failure to pay rent where the landlord and tenant had agreed to the rent payable during the COVID-19 period by mediation by the Small Business Commissioner, or the rent payable is determined by a Court Prescribed action includes eviction, or any other remedy available to the lessor.

Negotiation requirements for rent arrangements: Parties have an obligation to genuinely attempt to negotiate in good faith, having regard to the economic impacts of COVID-19 on the parties, the relevant SA legislative and Regulation provisions and the Code. Parties can apply to Small Business Commissioner for mediation. A person must not divulge any commercial, personal, business process or other information provided by parties under mediation, unless a prescribed exception applies. The Small Business Commissioner has also issued a Guidance Note on commercial information "requests" by commercial lessors during negotiations that arise because of the COVID-19 period. The Commissioner provides guidance in respect of what commercial tenant information is, or is not, reasonably required by the lessor to enable the conduct of negotiations

Magistrates Court now has broad powers to resolve rent relief disputes if the dispute cannot be resolved by way of Commissioner mediation. Any order of rent relief determined by the Magistrates Court must have at least 50% of that rent relief in the form of a waiver of rent

Additional relief: Announced that landlords who provide tenants impacted by COVID-19 with rent relief may be eligible for a 25% reduction on land tax payable on a parcel of land in the 2019-20 tax year, however full benefit of that relief must be passed on to affected tenant

Current position as at 8 July 2020: Legislation and measures in force.

Eligibility: Applies to "protected leases", being a lease to a tenant who is or becomes an eligible person during the financial hardship period (from 1 April 2020 until the financial hardship cessation day is announced). An "eligible person" is person who becomes entitled to participate in the JobKeeper scheme and is an SME entity for the purposes of the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Act 2020 of the Commonwealth, or who satisfies other prescribed criteria

Eviction and rent increase bans: Ban during "financial hardship period" (beginning 1 April 2020 and ending on declaration) on rent increases for protected leases, and a lessor taking any "prohibited lessor action" in relation to a protected lease on the grounds of a prescribed breach of the lease during the financial hardship period. Relevant breaches include a failure to pay rent or other monies, meet performance criteria, pay outgoings, or altering trading hours. Prohibited lessor action includes exercising, or attempting to exercise, any power or remedies against the tenant, including eviction. 

Negotiation requirements for rent arrangements: Parties to a protected lease must enter into and conduct negotiations during the financial hardship period in relation to the rent payable, or the renewal or exercise of an option in respect of the lessee (upon lessee request). Parties to the negotiation are required to provide the information necessary to enable negotiation, while also prohibiting misleading or deceptive conduct in the course of negotiation or the misuse of information provided by parties under the negotiation

Additional relief: On lessee request, landlord must extend a protected lease during the financial hardship period until at least the end of the financial hardship period. The Land Tax Amendment Bill has also been passed by Parliament and commenced on 1 July 2020. It provides for a land tax exemption for adversely impacted commercial properties. This exemption is available if the Commissioner is satisfied that the owner of the commercial land has been adversely financially impacted during the pandemic period, in a manner that is unexpected and not insignificant, because the amount of income payable to the owner in respect of the land has reduced or the land has not been leased or licensed as a result of the effects of COVID-19

Current position as at 7 October 2020: The COVID-19 Omnibus (Emergency Measures) Act 2020 is in place, and the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 have been made. On 29 September 2020 the Act was extended and the Victorian Regulations amended. The Victorian Regulations now apply from 29 March 2020 to 31 December 2020 (Relevant Period).

Eligibility: The Victorian Regulations apply to "eligible leases" as defined in the Victorian Act and prescribed by the Victorian Regulations, being retail leases, or non-retail commercial leases or licences under which the tenant:

  • carries on a business or is a non-profit body;
  • has, or the corporate group of which it is a part has, a likely annual turnover in the current financial year of less than $50 million (or annual turnover for the 2018-2019 financial year was less than $50 million);
  • is an entity who qualifies for, and is a participant in, the JobKeeper Scheme.

The Victorian Regulations do not apply to leases entered into after 29 March 2020 or to leases for various agricultural purposes.

Eviction and rent increase bans: During the Relevant Period, if a tenant has made a request to its landlord in accordance with the methodology for negotiation of rent relief set out in the Victorian Regulations and complies with any subsequent agreement to vary the lease:

  • the tenant is entitled to protection from termination for non-payment of rent or non-payment of outgoings;
  • the lease cannot be terminated for business closures or a reduction in trading hours; and
  • the landlord cannot seek to call on any security that it may hold to recover any shortfall in rent or outgoings.
  • Additionally, during the Relevant Period, a landlord cannot increase the rent (other than where the rent is determined by reference to turnover) unless the parties otherwise agree in writing.

    Negotiation requirements for rent arrangements: The Victorian Regulation sets out a methodology for a landlord and tenant to negotiate rent relief for eligible leases, as well as the documentary evidence required in support of a tenant's request. For example, the Victorian Regulations now provide guidance on the information a tenant must produce to demonstrate a fall in turnover. Generally, there is a provision that a landlord and tenant under an eligible lease must cooperate and act reasonably and in good faith in discussions and actions relating to the requirements of the Victorian Regulations. Whilst the landlord's offer must be based on all the circumstances of the lease, not less than 50% of the rent relief offered must be in the form of a waiver of rent unless otherwise agreed in writing. There is also now a requirement for the landlord to provide rent relief in an amount which is at least proportional to the fall in turnover experienced by the tenant. Importantly, as a consequence of the amended Victorian Regulations, a tenant can only claim rent relief from the date of making a compliant request for relief.

    Dispute resolution processes: A dispute about the matters in the Victorian Regulations may be referred for mediation. The Victorian Regulations set out the requirements for the application, including supporting documentation that is required and the processes that the Small Business Commission must adopt. If a resolution is not reached at mediation, a tenant may subsequently apply to the Small Business Commission for a binding order, which the Commission may make if the landlord has failed to respond to a dispute notice or failed to engage in the mediation in good faith. The Small Business Commission has published guidelines in respect of the operation of the Victorian Tenancy Relief Scheme.

    Additional entitlements to rent relief: A tenant may apply for further relief if its financial circumstances have materially changed, an existing arrangement is not, at a minimum, proportional to the fall in the tenant's annual turnover or, the existing arrangement does not apply until 31 December 2020.

    Effect of tenant losing eligibility to JobKeeper: The Victorian Regulations set out the circumstances in which a tenant may continue to be protected under the Tenancy Relief Scheme where that tenant has:

    • an existing rent relief arrangement but then becomes ineligible for JobKeeper; or
    • applied for rent relief but, before reaching an agreement on a rent relief arrangement, becomes ineligible for JobKeeper.

    Additional land tax relief: A 25% land tax discount is available to a landlord for the current year (and also for 2021 for residential landlords) and a deferral of the balance of land tax payments is available until 31 March 2021 (or 30 November 2021 for residential landlords) if a landlord has provided appropriate rent relief to its tenant. Land tax relief is available for both residential and commercial properties, however for commercial properties to be eligible, the property must be rented to a tenant with an annual turnover of up to $50 million, and the tenant must be eligible for the JobKeeper scheme. A slightly different test applies for owner/occupiers operating a licensed pub, club or restaurant.

    Landlords may also be eligible for an increased land tax discount up to 50% for the current year where they have provided their tenant (or majority of tenants for the relevant land) with at least a 50% rent wavier for at least 3 months.

    Owner/occupiers of commercial premises are also be eligible for a 25% land tax discount for the current year and a deferral of the balance until 31 March 2021 if the owner/occupier has an annual turnover of up to $50 million, and is eligible for the JobKeeper scheme. Again, a slightly different test applies for owner/occupiers operating a licensed pub, club or restaurant.

    A $60 million hardship fund has also been established to provide payments of up to $3,000 per tenancy for small commercial landlords.

    More information: 

    Current position as at 29 September 2020: Legislation and measures in force

    Eligibility: Small commercial leases ie. retail shop leases, leases for small businesses, incorporated associations or other leases prescribed by Regulation, which includes leases to Aboriginal and Torres Strait Islander Corporations where the land or premises has a commercial purpose.

    Eviction and rent increase bans: A ban on rent increases and evictions (rent arrears, failure to trade and other prescribed defaults) starting on 30 March 2020 and extended by regulation to end on 28 March 2021.

    Negotiation requirements for rent arrangements: The WA Code of Conduct applies to eligible tenants and landlords. Eligible tenants can request rent relief from their landlords during the emergency period, who must offer rent relief within 14 days of the request. Parties can apply to the Small Business Development Commission or the State Administrative Tribunal to resolve a dispute relating to or arising out of the new legislation, the Code of Conduct or financial hardship.

    Additional relief: No announced rental relief payments as at 29 September 2020 for commercial tenancies.

    Eligible commercial landlords can apply to the Small Business Development Corporation for a land tax relief grant where they can demonstrate they have waived a small business tenant’s rent and outgoings for a minimum of three months (and will not seek to recover those amounts). Grants are equal to 25% of land tax bill and are paid to successful applicants 6 weeks from the date the application was submitted. The application period for the grant is scheduled to end 30 October 2020 or earlier, if the funds run out.

    What's next?: Legislation allowing early lease termination by tenants in severe financial distress remains before the WA Parliament as at 29 September 2020 and parliamentary debate over the Bill has been adjourned since April 2020.

    Further details will be provided regarding changes or additions to the legislation or other support packages.

    More information: WA Tenancy Code of Conduct brings temporary relief for small business tenants

    Frustration of leases

    In response to the current pandemic, the Australian Government mandated closure of certain businesses including cinemas, theatres, pubs, galleries, museums, beauty parlours and salons, gyms and other "non-essential" industries. In the absence of an express right under a lease (for example a clause allowing for rent abatement or a force majeure clause), landlords and tenants alike are turning their minds to whether their lease can be frustrated if the tenant is unable to trade or use the property for the purpose intended, and permitted, under the lease.

    In general, the common law doctrine of frustration brings a contract to an end where, through no fault of the parties, a post-contract event has either made contractual obligations impossible to perform or it fundamentally transforms an obligation into a radically different obligation.

    Can a lease be frustrated?

    The history of frustration and its applicability to leases is complicated: frustration has proven difficult to establish and is relatively narrow in scope. Whether a lease can be frustrated depends on the nature of the business, and the purpose of the business' use of the premises.

    Case law indicates however that a temporary or transient change generally will not be sufficient to frustrate a lease. Courts have also been reluctant to take hardship into consideration. Although the applicability of frustration to leases remains relatively untested in Australian case law, it is an area which is likely to see significant development if forced closures become protracted.

    The onus of proving that the lease has been frustrated clearly rests with the party (landlord or tenant) seeking to excuse themselves from performance under the lease.

    Closure, partial trading and working from home

    We are increasingly seeing arguments for frustration where a business has been forced into circumstances of partial trading. A situation where this may arise could be a restaurant which has been mandated to close its doors to patrons, but still offers take-away from the premises.

    An argument for frustration in the case of a partial rather than a total shutdown of the provision of goods and services is relatively weaker. In the case of a restaurant for example, the provision of food to customers, whether this is by means of take-away rather than dine-in services, is not a fundamentally different obligation or impossible to perform.

    In general, if a business continues or is able to continue to use the premises, and/or is operating from the premises, then a successful argument for frustration is highly improbable.

    We are also seeing many businesses continuing to operate while encouraging their employees to work remotely. The physical workplaces of many private offices, including legal firms for example, are closed as a result of COVID-19, however many of these businesses continue to provide services to their clients with their employees working from home. Despite the physical premises being unable to be used, there is evidently no frustration of the lease as the business continues to operate.

    For tenants

    As a tenant seeking to rely on the doctrine of frustration, you should first assess your business's ability to operate from the premises and whether or not you are still able to sell goods or provide your services by alternative means. If you are still operating, or are able to operate, all or part of your business, or if you are still advertising your services, then it is unlikely you will be able to claim frustration of your lease. Tenants in this situation still have an obligation to pay rent as well as any other monies due and payable under the lease (unless an express provision in the lease or Government intervention determines otherwise).

    If the tenant can no longer operate its business from the premises, for example a cinema, the tenant would be in a stronger position to claim that the lease is frustrated. This too will depend on the length of the mandatory closure.

    For landlords

    As a landlord with a tenant claiming the lease is frustrated, you should consider if the tenant's business relies solely on operating from the premises or if the business can still operate, albeit partially, with employees working remotely or with reduced services.

    What are the consequences of frustration?

    If frustration does apply, the lease will be automatically terminated at law upon the occurrence of the frustrating event.

    In the ACT, Northern Territory, Queensland, Tasmania and Western Australia where the common law applies, the obligations of all parties under the lease will cease. This includes the payment of rent and outgoings (if any). New South Wales, South Australia and Victoria all have legislation outlining the process.

    Lease termination may result in harsh financial impacts on both the tenant and the landlord, and parties should review their financial and economic situations, including in relation to insurance, in case such a situation arises.