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06 Oct 2020

Victorian COVID-19 tenancy relief continues – new Regulations and requirements

Legislation to extend the Victorian commercial tenancy relief scheme received Royal Assent on 29 September 2020 and on the same date, amendments to the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Amended Regulations) came into effect. The Amended Regulations are an extension of the regulations published in May this year.

While the amending legislation foreshadows the possible further extension of the relief provisions until 26 April 2021, the Amended Regulations have only extended provisions, at least for now, until 31 December 2020. The Amended Regulations contain a number of changes to the measures that have been in place since March this year.

The Amended Regulations mean that commercial tenants will continue to be entitled to claim rent relief for the period through to 31 December 2020 if they come within the requirements of the Regulations. The Amended Regulations make a number of changes to the rent relief regime.

Eligible leases

While the amending legislation foreshadowed possible amendments to the definition of an "Eligible Lease" no substantial amendments have been made. However, the Amended Regulations now deal with a situation where a tenant ceases to be eligible for the Commonwealth Government JobKeeper scheme on or after 29 September 2020 by providing that any rent relief arrangements that are in place continue and the tenant continues to have the protection of the Regulations while the arrangements are in place.

Protections for non-payment of rent extended to outgoings

The Amended Regulations extend the protections regarding non-payment of rent to non-payment of outgoings in situations where a tenant has requested relief as set out in the Amended Regulations.

The tenant's request for rent relief

One of the issues that has faced landlords since the introduction of the Regulations is what information they can require from a tenant in support of an application for rent relief. Under the Amended Regulations, a tenant needs to provide additional documentary evidence alongside a request for rent relief. Specifically, in making an application under the Amended Regulations, a tenant must provide:

  • a statement that the lease is an eligible lease;
  • a statement that the lease is not excluded from the operation of the Amended Regulations;
  • a statement setting out the tenant's decline in turnover that is associated with the premises (and no other premises);
  • information that evidences that the tenant is a SME;
  • evidence of registration for the JobKeeper scheme including the Australian Tax Office receipt number for the tenant's election to register for JobKeeper and a copy of the tenant's most recent notice to the Commissioner of Taxation under the JobKeeper rules; and
  • information that evidences the tenant's stated decline in turnover, including at least one of the following:
  • extracts from the tenant's accounting records;
  • the tenant's business activity statements relating to the relevant turnover test period;
  • statements issued by an ADI in respect of the tenant's account;
  • a statement prepared by a practising accountant.

Additional requirements apply to the landlord's offer for rent relief

The Amended Regulations now include the concept included in the National Cabinet Mandatory Code of Conduct for Commercial Leasing that the landlord's offer must be proportional to the decline in the tenant's turnover, at a minimum. Further, the landlord's offer is no longer to take account of the financial ability of the landlord to provide rent relief. Finally, the offer for rent relief must include outgoings, if the rent payable under the lease is inclusive of outgoings.

No retrospective operation

The Amended Regulations provide that a tenant that has not previously requested rent relief may only apply for rent relief for the period from the date of the tenant's request until 31 December 2020.

Additional entitlements to rent relief

If a landlord and tenant have negotiated an existing agreement or lease variation under the Regulations, the tenant (but not the landlord) can now apply for further relief if:

  • the tenant's financial circumstances change materially; or
  • any existing agreement or lease variation is not proportional to the decline in the tenant's turnover; or
  • the agreement did not apply to the whole of the period starting on the date of the tenant's request and ending on 31 December 2020.

Changes to an agreement for rent deferral

Pursuant to the Amended Regulations, a landlord cannot request payment of any deferred rent prior to 31 December 2020. This applies to agreements or lease variations entered into under the Regulations before they were amended. In addition, a landlord cannot request any interest on deferred rent.

Additional dispute resolution procedures

Mediation

The Amended Regulations provide more detail in relation to the procedures for applying to the Small Business Commission (the SBC) for mediation including the form of any application and the supporting documentation required, as well as the processes the SBC must adopt. A new process is introduced allowing the SBC to issue a "regulation 20A certificate" where mediation has failed or the SBC believes that mediation is unlikely to resolve the dispute. The regulation 20A certificate must contain a statement as to whether the landlord failed to respond to a dispute notice or failed to engage in mediation in good faith. The regime does not apply to any such failures by the tenant.

Binding orders

The Amended Regulations introduce extensive provisions allowing the SBC to make a binding order directing a landlord to provide rent relief. A tenant can apply for such an order where a regulation 20A certificate has been issued and the tenant has not applied to the Victorian Civil & Administrative Tribunal for an order for rent relief. The Amended Regulations set out the requirements for this application, the documentary evidence required to accompany the application and the processes the SBC is to follow prior to issuing such an order. These include requirements for the SBC to give notice to a landlord and give the landlord an opportunity to make submissions.

Importantly, the SBC will decide any application based on the material submitted and without a hearing. The SBC can make a binding order if it is satisfied that it is fair and reasonable in all the circumstances to do so, neither the landlord nor the tenant has commenced proceedings in VCAT and the landlord has either failed to respond to a dispute notice or failed to engage in mediation in good faith. Again, there is no reference to any such failures by the tenant.

A binding order made by the SBC comes into operation immediately after a copy is provided to the landlord. However, there is scope to apply to the SBC to amend or revoke the binding order in certain circumstances.

An application for review or enforcement of a binding order can be made to VCAT. Any application for review must be made within 14 days of the SBC's decision.

Summary

While the Amended Regulations provide some assistance to landlords in relation to the information to be provided by tenants seeking relief and closing off the possibility of additional claims by tenants for periods before the tenant requested relief, they also open up the risk of more regulated SBC processes including binding rent relief orders on landlords.

If you require any assistance in navigating these new requirements please contact us.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.