Update 6 – (extension of the Regulations) - effects of Covid-19 on commercial tenancies

Published 20 August 2020; Updated 21 August 2020

This is update 6 of 9 - for our latest article on this topic see here.

On 20 August 2020 the Premier’s office announced that the Regulations governing the obligations of landlords and tenants of commercial leases in the context of the COVID-19 pandemic (for a summary of the position to date see our article here: https://www.easternbridge.com.au/post/update-5-covid19-and-commercial-tenancies) will be extended (at least to some extent) until the end of the year.

The press release can be read in full here: https://www.premier.vic.gov.au/pause-evictions-extended-and-extra-renter-protections.

The press release indicates the following changes will be made:

• the present ban on evictions and rent increases will be extended until 31 December 2020;

• commercial landlords will now be required to provide rent relief in proportion with the fall in turnover being experienced by eligible tenants going forward; and

• the Victorian Small Business Commissioner will now also have greater capacity to make an order on rent relief if a landlord refuses to respond to rent relief requests.

Extension on ban on evictions and rent increases until 31 December 2020

As at the date of writing, it is not yet clear whether the anticipated amendments to the Regulations will take the form of an extension to the end of the ‘relevant period’ from 29 September 2020 to 31 December 2020, so that all obligations under the Regulations relevant to that date will be extended, or whether only certain protections or provisions, including the ban on evictions and rent increases, will be extended.

With the changes to the requirements of rent relief offers, it can be expected that parties’ obligations in respect of rent relief will be extended to 31 December 2020. However, along with the ban on evictions, one might expect other protections in the Regulations, such as the prohibition on landlords drawing on security deposits, to be similarly extended to 31 December 2020, though this remains to be confirmed.

Proportionality of rent relief

The press release indicates that the Regulations will also be amended to explicitly incorporate a requirement that rent relief offered to eligible tenants and licensees (in the form of rent waivers and deferrals) be proportionate to the reduction of their trade during the pandemic period.

This is a principle taken from the Code of Conduct the subject of our Update 3 (see here - https://www.easternbridge.com.au/post/covid19-and-commercial-tenancies). The relevant principles in the Code are principles 3 and 4.

It is not yet known what form these amendments will take, however such changes would significantly differ from the current position under the Regulations, which do not presently require rent relief to be offered in proportion to a tenant’s reduction in trade, but instead requires the landlord to take into account a number of factors when making a rent relief offer - a tenant’s reduction in turnover is just one of a number of those factors.

Expanded powers of the Victorian Small Business Commissioner (‘VSBC’)

The Premier’s press release also states that the VSBC will now also have greater capacity to make an order on rent relief if a landlord refuses to respond to rent relief requests.

Such changes would be a significant expansion of the role of the VSBC under the current Regulations, which is generally limited to assisting the parties to resolve rent relief disputes including by way of mediation.

It will be interesting to see how exactly these expanded powers will work, in what circumstances such powers will be exercisable, and the nature and extent of the orders that could be made.

Limited powers might grant the VSBC power to issue a certificate containing recommended orders on rent relief that can later be made by VCAT in the event that, upon application to the VSBC, a party refuses to participate in the dispute resolution process. By contrast, wider powers might enable the VSBC to make some form of orders on rent relief itself, without requiring formal Tribunal orders to be made (similar to the determinative market valuation process, but with the SBC appointed as the 'expert').

Our view is that the involvement of VCAT is still likely to be required (or should be required) - the VSBC is not a Court or Tribunal and power to make ‘orders’ akin to orders of a Court or Tribunal would be a significant departure from the current powers of the VSBC. If VCAT involvement is required , then it will also be interesting to see whether VCAT will be able to formalise recommended orders ‘on the papers’ (without substantive hearing of the matter), or whether VCAT will engage in a more typical case administration process (perhaps in some streamlined form).

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No formal details (by way of new Regulations) have been released as yet – we will monitor and update as soon as details are available.

We note that the COVID-19 Omnibus (Emergency Measures) Act 2020 (pursuant to which the Regulations are made) will come to an end (insofar as it relates to the commercial leasing regulations powers) on 29 September. Parliament is due to sit next on 1 September and would need to pass legislation to extend the operation of the Act to enable the Regulations to carry through to the end of the year.

Yen Ong

Solicitor

Paul Nunan

Director

Accredited Specialist | Commercial Leasing