COVID-19 and Leases – The Legislation has arrived. What now?
What are Eligible Leases and will the Code apply to me?
On 24 April 2020 the COVID-19 Omnibus (Emergency Measures) Act 2020 (“the Act”) passed Victorian Parliament.
What is the relevance to landlords and tenants?
The Act gives the Minister for Small Business the power to provide regulations to address and implement the Federal Government’s COVID 19 Mandatory Code for Leases (National Cabinet Mandatory Code of Conduct SME Commercial Leasing Principles During COVID-19) (“the Code” for short). To read more about the Code see our earlier blog here.
The regulations have been released and you can see more on our blog here and will provide detail as to how the Code is interpreted. However, the Act provides some clarity as to how the Code is likely to apply to landlords and tenants.
What are Eligible Leases and will the Code apply to me?
The Act applies to Eligible Leases.
An Eligible Lease is a retail or non retail commercial lease or licence (include sublicences and subleases) that is in place when the regulations come into effect (which is likely to be back dated to 29 March 2020), where the tenant is an SME entity and an employer who qualifies for the Jobkeeper scheme and is a participant in the Jobkeeper scheme. This is a critical point noting that some small businesses are not opting to enter the scheme.
Eligible Leases exclude certain prescribed leases such as those with tenants who are part of a group (or have a relationship) with entities that are above the prescribed turnover threshold.
So what powers does the Minister have in creating regulations?
The Minister can create regulations to:
- Prohibit the termination of an Eligible Lease;
- Changing any period in which someone must do something (i.e. rent reviews or payment of rent);
- Changing or limiting rights of landlords under leases;
- Exempting landlords and tenants from complying with certain parts of a lease;
- Modifying the operation of a lease;
- Modifying the application of the common law in relation to the lease;
- Extending lease terms;
- Deeming regulations to be part of the lease terms;
- Requiring landlords and tenants to negotiate;
- Requiring disputing landlords and tenants to go to mediation with the Small Business Commissioner.
Can landlords obtain compensation from the Government?
No, the Act prohibits a Landlord seeking compensation from the Government.
What about Rent Insurance?
Landlords who have rent protection insurance need to see what they are covered for and how this may impact on any negotiation they have with tenants.
What’s Next?
Stay tuned for the regulations which will detail what is and is not included from the Mandatory Code. Once these regulations are known you can then negotiate to obtain appropriate rent relief.
Should I get advice?
Yes, its important to know your rights, get sufficient information about the financial status of the tenant and come to an agreement that works for all parties involved. A careful review of the position of the parties and the Code (as implemented by the Act and the regulations when they are drafted) is critical.
Do I document the agreement?
Yes, it is critical that any variation of the lease be documented. The main reasons for this is:
- So the parties are clear as to what has been agreed and everyone knows what rent relief is provided and how long it is to last;
- So there is no dispute in 3 months as to what was “the agreement reached”. Negotiations can often be developed over multiple pieces of correspondence and phone calls and if the agreement is not properly documented, litigation could follow;
- Whilst there is a cost, it will be cheaper than a dispute; and
- It will provide clear information for any new tenant or successor landlord who purchases the property before the rent relief is repaid.
Tisher Liner FC Law have developed an excellent COVID-19 variation of lease. If you need advice or assistance with negotiations or have a complicated variation to document, please contact Phillip Leaman or one of our property team.
Meanwhile, stay safe and be kind to each other. We are in this together.
