Update 13 - effects of Covid-19 on commercial tenancies

COVID Cases (the kind that VCAT, rather than the hospitals, worry about)


More VCAT decisions in relation to the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (“the Regulations”) are starting to land (at the bottom of this article is one good old-fashioned Retail Leasing case).


Our updates 11 and 12 set out a summary of the PS Market and Filomeno decisions respectively. Some more decisions of note have come out and a brief summary of each follows. This summary assumes at least a basic understanding of the legislative framework underpinning the Regulations and the various iterations thereof – our older updates can assist in this regard if required.


Background


The two big decisions summarised below relate to the interplay between the first version of the Regulations and the Regulations as amended 29 September 2020 (and again 1 January 2021).


That interplay has previously been the subject of speculation. As highlighted in our Update 9 – (the commercial leases Regulations amendments) - effects on commercial tenancies, it was not clear whether a rent relief request made by a tenant under the Principal Regulations (that is the Regulations prior to amendment) would also provide them with protections and benefits under the Amended Regulations. The Amended Regulations added further, more onerous requirements in making a rent relief request and stated that a landlord’s offer of rent relief only needed to relate to the period commencing on the date that the tenant made a compliant request (and not 29 March 2020 – 29 September 2020, as was set out under the original form of Regulations).

Our advice in Update 9 was that tenants would be well advised to make a further, compliant request for rent relief under the Amended Regulations to avoid an argument that a failure to make a further compliant request under the Amended Regulations meant that any protections ceased on 29 September 2020.


VCAT seems to now be leaning away from that interpretation and affording broader protections to tenants who made compliant pre-29 September 2020 requests. The cases don’t seem to engage with Regulation 10(4)(c) in any depth (or with the fact that a pre-29 September request won’t be a compliant request under Regulation 10(1) as is contemplated by the wording of Reg 10(4)(c)).


The big decisions


R & D Health Clubs Pty Ltd v Lin Wang Pty Ltd (Building and Property) [2021] VCAT 349


A reasonably tenant friendly decision here that should give landlords pause in considering whether to press their matters through to VCAT.


Extended operation of pre-29 September 2020 rent relief requests


In this case the tenant (a gym operator in Burwood) made a rent relief request in May 2020 under the Regulations as they stood prior to 29 September 2020 (there were some deficiencies in the request but the landlord did not press those and the Tribunal concluded that the May request was compliant).


No agreement as to rent relief was reached following the May request and, following an unsuccessful mediation, the tenant commenced VCAT proceedings in August 2020.


The tenant conceded that it made no further rent relief request following variation of the Regulations (from 29 September 2020 and again from 1 January 2021). The tenant argued notwithstanding the fact it did not make a further rent relief request it was entitled to relief through to the end of March 2021 (that is relief in respect of both extended periods of the Regulations) because the relief process was “all one procedure”.


Largely in reliance on the Tribunal’s earlier decision in Yarraville Business Pty Ltd v Persico (discussed below) the Tribunal determined that the additional documentation and information required by the Regulations as amended and applying after 29 September “only relate to requests for rent relief made after 29 September 2020, and in circumstances where no compliant request was made prior to that date”. Put plainly – a tenant may rely on a pre-29 September rent relief request to secure rent relief through to 28 March 2021 (unless landlord and tenant had agreed to rent relief following a pre-29 September request).


The position is perhaps best summarised by Deputy President Riegler at Paragraph 49 of the decision:


To interpret the Amended Regulations as requiring those tenants already entitled to claim rent relief under the scheme to submit a fresh request for rent relief, in circumstances where the amending regulations do not mandate for that to occur, leads to uncertainty, confusion and further disputation. It would require the parties to go through the rent relief process of request – offer – mediation again. Conversely, interpreting the Amended Regulations to allow a compliant request for rent relief to ‘roll on’ through a subsequent relevant period leads to continuity and certainty. In my view, an interpretation that leads to continuity and certainty is to be preferred to one that leads to uncertainty, confusion and further disputation.


The decision seems to go against all prior interpretation and discussion of the amending regulations. Further detailed discussion will, no doubt, ensue.


Definition of turnover


Unremarkably, the decision also found that jobkeeper payments, cash flow boost payments and state government grants received by a tenant are not to be included in the definition of turnover for the purposes of calculating rent relief.


Finding of relief


The Tribunal ordered that the tenant was entitled to 73.5% “rent relief” in respect of the period April – December 2020 (being the entire period in respect of which the tenant provided financial documents to the Tribunal). The Tribunal did not make an order as to whether that relief was to provided by way of waiver or deferral and did not seem to provide the parties any guidance on that question.


The Tribunal did not provide any commentary why it was fit to fix rent relief in respect of the period prior to 29 September – it was taken by the Tribunal that proportionate relief was a fait accompli.


Curiously the Tribunal also ordered that the tenant was entitled to waiver of 100% of outgoings in respect of the period that the tenant was prevented by law from operating from the premises – it is unclear how the Tribunal reached this conclusion on the basis of the Regulations.


Yarraville Business Pty Ltd v Persico (Building and Property) [2021] VCAT 213 (12 March 2021)


A curious and again tenant friendly decision.


Extended protections of Regulation 9


In a nutshell, the decision in Yarraville Business was that a tenant will be entitled to the protections of Regulation 9, despite not making a further rent relief request after 29 September, even in respect of arrears accruing after 29 September 2020 (when the amending Regulations came into force).


The decision relied on Section 28 of the Interpretation of Legislation Act 1984, which states that:


“Where a subordinate instrument or a provision of a subordinate instrument… is repealed or amended…the repeal, amendment, expiry, lapsing or ceasing to have effect of that subordinate instrument or provision shall not, unless the contrary intention expressly appears:

(d) affect the previous operation of that subordinate instrument or provision or anything duly done or suffered under that subordinate instrument or provision;

(e) affect any right, privilege, obligation or liability acquired, accrued or incurred under that subordinate instrument or provision;

(f) ... or

(g) affect any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as is mentioned in paragraphs (e) and (f)—

and any such investigation, legal proceeding or remedy may be instituted, continued or enforced .... as if that subordinate instrument or provision had not been repealed or amended or had not expired, lapsed or otherwise ceased to have effect.”


In the absence of any contrary intention in the Amending Regulations, the Tribunal found that the protections afforded by Subregulation 9(2) continued to have effect. Specifically, the Member noted that:


… the clear effect of s 28 is to protect a right that has been acquired under the subordinate instrument prior to its amendment. I accordingly find that Yarraville is entitled to the continued protection of the moratorium against conviction to which it had become entitled under Subregulation 9(2) of the Principal Regulations, even after the September Amendments came into operation.


Accordingly, where a tenant has not made a further compliant request for rent relief under the Amending Regulations, they can still expect to enjoy the protections granted under Subregulation 9(2) of the Regulations prior to their amendment.


Some smaller decisions


Zeini v Inner Metropolis Holdings Pty Ltd (Building and Property) [2021] VCAT 243


Nothing too exciting here but some welcome good news from a landlord perspective.


What constitutes a valid rent relief request

In an otherwise unremarkable decision Deputy President Riegler found that where the requirements of Regulation 10 have not been (specifically in this case the tenant had not provided the financial information necessary for the landlord to assess the request) met the tenant will be found to have not properly requested relief and will not be entitled to relief or to the protections of Regulation 9.


The decision does leave the door open for requests to be made in a piecemeal fashion, but only where the relevant information is provided in a timely manner.


Karting Madness Pty Ltd v Daniel Terrence Pty Ltd (Building and Property) [2021] VCAT 159 (26 February 2021)


The limited protections of Regulation 9


Karting Madness considers whether “regulations 9(2) and 9(3) of the Principal Regulations[that is to say the Regulations prior to their amendment 29 September 2020], properly construed, confer a right not to be evicted from the premises for any reason.”


Ultimately the Tribunal found that Regulation 9, despite its broad wording in the Regulations prior to 29 September amendment, did not confer a broad protection from eviction for “any reason” and rather protected a tenant from eviction only in respect of non-payment of rent.

The Tribunal found that an interpretation preventing eviction for any breach, no matter how repugnant, would be an absurdity.


The relevant reasoning is extracted as follows:


The only act by a tenant of an eligible lease which would otherwise be a breach of the eligible lease, but in respect of which the tenant is expressly given statutory protection by regulation 9(1) is, therefore, the non-paying of rent otherwise required under an eligible lease. In my view, it follows that the preventing of a landlord from evicting a tenant or re-entering premises imposed by regulations 9(2) and 9(3) respectively extends only to the circumstance that a tenant has not paid the amount of rent required under an eligible lease. The proposition that the effect of regulation 9(2) and (3) is to extend, by implication, a statutory protection to a tenant against eviction and re-entry respectively in respect of all breaches of an eligible lease, whether it is in respect of the non-paying of rent or otherwise, is not in my view reasonably arguable.


I also consider that a literal construction of regulations 9(2) and (3), without reading it in the context to which I have referred would, in the case of a tenant of an eligible lease who, having complied with regulation 9(1) of the Principal Regulations, would obtain a statutory right not to be evicted for any other breach, no matter how gross or repugnant. I am of the view that a literal construction of regulations 9(2) and (3), as propounded by the tenant, would be modified so as to avoid that absurdity.”


Wilson v G C Beel Pty Ltd (Building and Property) [2021] VCAT 142 (19 February 2021)


The Code of Conduct is not law


In a sensible decision the Tribunal found that the leasing principles contained in the National Cabinet Mandatory Code of Conduct have no legal effect in Victoria and cannot be relief upon.


The relevant extract of the decision is that:


In my view, the Leasing Principles set out in the National Cabinet Mandatory Code of Conduct do not have legislative force. They are guidelines only. Indeed, legislation has been introduced into Victoria which adopts many of the principles set out in the National Cabinet Mandatory Code of Conduct but not all. That legislation is the COVID-19 Omnibus (Emergency Measures) Act 2020 and the regulations made under that Act. The regulations made under that Act expressly require a tenant to be a participant in the JobKeeper Scheme, rather than merely being eligible to be a participant. Mr Wilson concedes that he was not a participant, albeit that he may have been eligible. In those circumstances, I find that rent relief under the COVID-19 Omnibus (Emergency Measures) Act 2020 and the regulations made under that Act is not available to Mr Wilson.


Non-COVID


Izett St Pty Ltd v Applgold Pty Ltd (Building and Property) [2021] VCAT 174


While not in the COVID sphere the Tribunal has handed down a decision in Izett St finding that ‘subletting premises is not the provision of a service in the sense required by the RLA. If that were the case every sublet premises could be classified as a retail premises.’ Subleases are highlighted as being separate from licences and the decision suggests that “had the applicant offered licences to the public to use parts of the Premises it may have been more akin to the provision of services. Unlike a caravan park, serviced office, conference centre or cold storage facility, the applicant gave exclusive possession often for years at a time to its subtenants thereby giving away the right to use the Premises.”


The tenant argued that its business of sub-letting, in and of itself, amounted to a retail use (drawing analogies to the CB Cold Storage matter). While the tenant raised the argument that the Tribunal should look to the (retail) use of the premises by the sub-lessees themselves the decision deals with tenant's position in this regard in a single paragraph and dismisses that question as "irrelevant to the question for determination" without any further discussion on the topic.


In this regard we note the Act, when defining retail premises, considers the use of the “premises”, without reference to the use “by the tenant”. In that context the dismissal of this argument by the Tribunal without any further discussion is perhaps a bit disappointing.


The outcome would see a lease taken out by, for instance, a franchisor and sub-leased to a franchisee fall outside the scope of the Act (while the sub-lease itself would still be within the auspices of the Act). That outcome seems somewhat perverse.


Sam Hopper’s article on the case goes into appropriate detail about the Tribunal’s decision and is well worth a read: | VCAT finds that a head lease is not a retail premises lease under the RLA 2003Sam Hopper Barrister


COVID Decisions are landing thick and fast – we will try to keep you updated but in the interests of not spamming we are inclined to do bulk updates like this one.


If you have any queries please don’t hesitate to get in touch.


Jack Kelly

Lawyer


Paul Nunan

Director

Accredited Specialist | Commercial Leasing



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