Commercial Tenancy Relief Scheme
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We had numerous questions regarding this topic. Please see below the Q&A.
1. How to deal with CTRS rent relief agreements if you are selling your property before the deferred rent is paid
The vendor is the party entitled to the deferred rent. On this basis we recommend an adjustment in favour of the vendor at settlement for all deferred rent – the purchaser therefore pays it and has the entitlement to the deferred rent when paid by the tenant. This point is really a matter for negotiation though and has generally been rejected by purchaser’s, quite often with the argument that if the deferred rent is never paid then the purchaser loses out.
2. In the context of claiming deferred rent when a property is being sold subject to lease, as a general rule, is it not the case that arrears of rent run with the land and the vendor has no right to recover arrears unless specifically provided in the contract of sale?
It is certainly the case that one option is to deal with the deferred rent by way of adjustment between the vendor (current landlord) and purchaser (as incoming, new landlord). Broadly speaking any covenant that affects the landlord as a landlord or the tenant as a tenant will likely be in the class of covenants that touch and concern the land, meaning the covenant will bind the assignee of the reversion. So arguably, deferred rents touch and concern the land and will run with the reversion under s 141 of the Property Law Act. It may therefore be logical to look at deferred rents as unpaid rents. If not adjusted at settlement, then they are still due to the landlord as a pre-settlement debt and the contract of sale would need to include a special condition that allows the vendor the right to seek to issue proceedings (and for the purchaser to allow the vendor to issue those proceedings in the purchaser’s name where required), to ensure the vendor retains the ability post settlement to claw-back its pre-settlement debts (e.g. deferred COVID rents).
3. What happened if we had lease option and market rent review last year?
In the context of an eligible lease, a landlord may now proceed to increase the rent in accordance with the market review provisions of the lease, as the Commercial Tenancy Relief Scheme is no longer in force.
However, if rent relief arrangements were made during the relevant period, and the lease is an eligible lease, then the landlord cannot for example backdate any increase in rent (to apply it to the period in which rent relief was validly granted) as landlords were prohibited under the Regulations from increasing rent under an eligible lease while the Regulations were in place. We do encourage you to reach out to us for tailored legal advice if you have specific queries surrounding rent increases where a COVID-19 rent relief arrangement was previously in place.
4. What happens if you have applied for mediation pre- expiration of CTRS which hasn’t yet been held or if no agreement was reached at mediation?
VCAT has yet to clarify whether arrears pertaining to a period over which there remains an unresolved request for rent relief can be enforced through debt collection proceedings, application of security deposits or service of section 146 notices. Legal advice should be sought in specific cases before deciding to proceed with enforcement action. Ultimately, any outstanding rent relief requests can be resolved by either party applying to VCAT for a binding order (under the Regulations the Small Business Commissioner may be able to make binding orders in certain circumstances – we encourage you to reach out to us to seek tailored advice if you have any queries or disputes regarding rent relief).
5. How are you dealing with PPSR claims after tenants have been evicted?
It is prudent to carry out PPSR searches of the tenant and of any goods with a serial number. In many situations, there will be no goods with a serial number and no PPSR charge on the tenant. In those cases where results do come up, you should seek legal advice as to how to deal with the goods.
6. What are the issues with lease clauses and Australian Consumer Law concerning unclaimed goods
Pursuant to section 56(4) of the Australian Consumer Law and Fair Trading Act, the unclaimed goods provisions set out in that Act only apply if there is no agreement about their disposal between the “provider” (i.e. the tenant) and the “receiver” (i.e. the landlord). So if there are provisions in the lease, they prevail as to any goods of the tenant’s that are left behind.
In cases where the lease does not make provision, you should seek specific legal advice. However, in our experience, the provisions set out in the Australian Consumer Law and Fair Trading Act are only practically relevant in very rare situations. This is because the major consequences of not complying with those provisions are: (a) the tenant (or someone else with an interest in the goods) suing you for the value of goods disposed of and (b) not being able to provide good title to a purchaser (for example, at an auction). In the case of (a), if the goods are genuinely not valuable, the risk is low. Conversely, if the goods are valuable, their owner will usually make efforts to claim them, so that they will be unlikely to remain uncollected goods for long enough for you to be able carry out the procedures in the Act. So you don’t usually get to the point of situation (b). There are no criminal sanctions for failure to comply with the procedures, so it becomes a matter of judging the financial risk to you of dealing with the goods in a particular way.