COVID-19 Lease Update – The Regulations are in. It’s time to negotiate in good faith
By Phillip Leaman
4 May 2020
The Covid-19 Omnibus (Emergence Measures) (Commercial Leases and Licences) Regulations 2020 (“the Regulations”) have now come into force with retrospective effect from 29 March 2020 and will continue until 29 September 2020. The Regulations provide the framework for landlords and tenants to deal with COVID-19 and rent relief. It also provides prohibitions on landlords from taking adverse steps against tenants in some circumstances.
But what does this mean for landlords and tenants and who is covered?
Only Eligible Leases are included in the Regulations. We provide details about what is an Eligible Lease and more details about the COVID-19 Omnibus (Emergency Measures) Act 2020 see our earlier blog here.
Essentially, a tenant needs to be eligible for and take up the Jobkeeper scheme but some types of leases are excluded.
What do the regulations provide?
A requirement for tenants to make a formal request for rent relief in writing and the tenant confirming with the landlord that the lease is an Eligible Lease under the Act;
- The landlord has 14 days to respond to a request for rent relief to make an offer for rent relief;
- Landlords and tenants must act in good faith in negotiations.
- The landlord’s offer must take into account all the relevant circumstances including the financial capacity of the tenant and landlord, whether the premises can be used, whether the failure to provide rent relief will affect the tenant’s ability to perform ongoing obligations under the lease and any reduction in outgoings charged;
- At least 50% of the rent relief must be a waiver of rent;
- The Small Business Commissioner may impose guidelines on what information tenants are to provide landlords;
- Landlords must consider waiving outgoings or other expenses payable by a tenant during any period where the tenant is not able to operate at the premises and in turn, landlords can reduce or cease services provided at the premises where premises are not being used;
- Rents cannot be increased until after 29 September 2020;
- If financial circumstances of a tenant materially change after a variation to the lease has been made, the tenant may make a further request to the landlord for rent relief;
- Landlords will need to be very careful of terminating leases as there are various prohibitions on termination of leases during the period of the regulations and penalties can be imposed on landlords;
- Mediation offered by the Small Business Commissioner for disputes between landlords and tenants at no cost (other than your own legal representation).
What about Land Tax?
Some landlords that have provided rent relief to a tenant (under an Eligible Lease) may apply to the State Revenue Office for a land tax discount of 25% and the ability to defer the remainder of their land tax liability until 31 March 2021. Land tax relief may be available to landlords who cannot find a tenant because of the Covid-19. However, seek legal advice on whether you can seek the discount before taking this into consideration in any agreement with the tenant as not all landlords will be able to obtain the discount.
Should I get advice and legal assistance in negotiating rent relief?
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 and takes into consideration the maters required to be reviewed in the regulations. A careful review of the position of the parties and the Regulations is critical. By not documenting the agreement or negotiations leading to any agreement properly could give rise to a tenant taking action against the landlord in the future or civil monetary penalties being imposed.
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.
For details about 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) see our earlier blog here. Note that the Code has not been fully endorsed by the Victorian Parliament and you should read the below for more clarity.
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.
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