The Victorian State Parliament yesterday opened the door to new regulations that will affect the relationship between landlords and tenants under retail and commercial leases, including for the purposes of implementing the National Cabinet Mandatory Code of Conduct, as part of its COVID-19 pandemic response.
While we know that the National Cabinet Mandatory Code of Conduct will be implemented by the regulations, it will be necessary to carefully review the regulations, as they are released, to fully understand the way in which they will affect the relationship between landlords and tenants. In particular, landlords and tenants will need to consider these regulations, once implemented, to ensure that they do not seek to enforce contractual rights, or seek compliance with contractual obligations, that are overridden by the regulations.
How the COVID-19 Omnibus (Emergency Measures) Act 2020 will affect landlords and tenants
The Act allows for the introduction of regulations which will affect tenancy relationships between landlords and tenants.
As well as affecting certain leases under the Retail Leases Act 2003 (Vic), these regulations will also affect certain "non-retail commercial leases and licences":
- leases (including sub-leases and agreements for leases and sub-leases) of premises used solely or predominantly for the carrying on of a business; and
- licences (including sub-licences and agreements for licences and sub-licences) which give a person the right to occupy part of premises solely or predominantly for carrying on a business.
"Eligible leases" (being leases to which the Act and regulations will apply) are retail leases or non-retail commercial leases or licences:
- that are in effect of the day the regulations come into operation; and
- under which the tenant:
- carries on a business or is a non-profit body; and
- has a likely annual turnover in the current financial year of less than $50 million (or its annual turnover in the previous financial year was less than $50 million); and
- is an employer who qualifies for the Jobkeeper scheme; and
- is a participant in the Jobkeeper scheme.
Particular leases and licences which would otherwise be eligible leases may also be rendered ineligible by the regulations.
The regulations will be made by the Governor in Council on the recommendation of the Minister for Small Business who must be satisfied that the regulations are reasonably necessary to respond to the COVID-19 pandemic. The regulations may provide for a range of matters including:
- prohibiting the termination of an eligible lease. The effect of this being that a landlord of an eligible lease may not have the right to end a lease or take possession for previous defaults.
- changing a period under an eligible lease in which someone must or may do something. This could allow tenants to defer payment of rent, or give a longer time periods to respond to notices or other requirements in a lease.
- changing or limiting any other rights of a landlord under an eligible lease. The effect of this could be wide-ranging and mean that rights other than in relation to ending the lease could be effected such as the right to review rent, call on a bank guarantee or charge penalty interest.
- exempting a landlord or tenant from having to comply with any provision of an eligible lease. While this heading extends to both landlords and tenants, it clearly is wide-ranging and is likely to have a greater effect on landlords (for example, by restricting enforcement of a tenant's obligation to trade or pay rent). This may, however, provide some protection to landlords who are unable to comply with all of their obligations, such as maintaining common areas.
- extending the period during which an eligible lease is in effect. This may allow the extension of leases that would otherwise have expired but for a moratorium on eviction of tenants. It may also allow a tenant further time to trade during any recovery period.
- modifying the application of various leasing legislation to an eligible lease – for example, we expect application of section 146 of the Property Law Act 1958 (which prescribes a period of time to remedy a default before a landlord may re-enter premises) will be affected by the regulations.
- imposing new obligations on landlords or tenants under eligible leases – for example, the obligation of a landlord to pass on the benefit of any reductions in outgoings or deferral of loan payments.
- requiring landlords and tenants who are in dispute to refer the matter for mediation arranged by the Small Business Commission.
Regulations made under these provisions may have a retrospective effect to 29 March 2020.
Reinforcing the emergency nature of these provisions, they will be repealed six months after they commence. The regulations will also be revoked at that time.
As the regulations are made, we will keep you updated as to how these regulations may affect you.