COVID-19 and changes to Commercial Tenancy Relief Scheme in Queensland and Victoria
The Victorian and Queensland Governments have announced extensions to COVID-19 Commercial Tenancy Relief Schemes
The Queensland Government has announced that the moratorium on commercial lease evictions will be extended to 31 December 2020 from 29 September 2020.
The Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (the Regulation) came into effect on 28 May 2020. The Regulation implements the National Cabinet mandatory code of conduct – SME commercial leasing principles during COVID-19 (the Code) in Queensland.
The regulation has effect from 29 March to 30 September 2020 (the COVID-19 emergency response period). During this period, if a tenant with an affected lease fails to pay rent or outgoings, or is unable to open, the landlord cannot start court or tribunal proceedings (known as a prescribed action).
If a business has been affected by COVID-19, it may be able to negotiate with their landlord or tenant for rent relief or other support in relation to your commercial lease, or seek help with dispute resolution. Legislation is in place to help both parties work together to mitigate the impact of the COVID-19 emergency.
If a lease is not eligible for support under the Regulation or Code, this information can still be used as a guide to help cooperate and negotiate in good faith with a landlord or tenant to reach an agreement that reduces the impact of the COVID-19 emergency on a business.
To be eligible for lease assistance under the Regulation and Code, a business must have an affected lease.
A lease is an affected lease if it meets all of the following criteria:
- It is a:
- retail shop lease; or
- a prescribed lease (a lease, other than a retail shop lease, where the leased premises are wholly or predominantly used for carrying on a business).
- It was current and binding on the tenant on 28 May 2020. This includes any form of lease, sub-lease, license or other agreement to occupy premises (month-to-month, verbal etc.) all of which are considered binding on the tenant.
- The tenant under the lease is a small to medium enterprise that carried on a business (or non-profit activity) in the current financial year and had a turnover that was
- less than $50 million for the 2019–20 financial year and/or
- likely to be less than $50 million for the 2020–21 financial year.
- The tenant is eligible for, but not necessarily enrolled in, the JobKeeper Payment scheme.
Negotiating rent and other lease conditions
The Regulation sets out the process for tenants and landlords to negotiate the rent and other conditions of a small business tenancy or affected lease.
Before starting negotiations, each party should work out what amount of rent reduction is feasible for their own financial circumstances.
There are 5 phases a business should work through when negotiating rent relief.
Phase 1: Ask to negotiate
Phase 2: Share sufficient information
Phase 3: Landlord makes an offer
Phase 4: Negotiate the rent payable and other stated conditions
Phase 5: Document the agreement
Use the rent relief negotiation checklist to help with the negotiation process.
If an agreement is unable to be negotiated, assistance can be sought to resolve the dispute.
The Victorian Government has recently introduced the COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Bill 2020 (Extension Bill) to amend the current COVID-19 Omnibus (Emergency Measures) Act 2020 (Act) (and the Residential Tenancies Act 1997, which is not addressed in this Alert).
What changes will be made once the Extension Bill becomes law?
As such, we understand that the eligibility requirements will continue to require that the tenant qualifies for and is a participant in the JobKeeper scheme and has an annual turnover of up to $50 million.
- The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations) are currently in place until 29 September 2020. They provide a legal framework for rent relief negotiations, and prohibit certain lease terminations and rent increases.
- The Extension Bill amends certain provisions of the Act which facilitate the Commercial Tenancy Relief Scheme, to allow for the extension and amendment of regulations up to 26 April 2021. The Government has indicated that the rent relief framework in the new regulations will only be extended to 31 December 2020. The date of 26 April 2021 is provided in the Extension Bill to allow for a contingency and for further regulations to be made if required.
- The definition of “eligible lease” will be amended.
- It will now also include a “retail lease or a non-retail commercial lease or licence of a specified class”. A “specified class” is not defined in the Extension Bill but further detail should be found in the new regulations once published.
- The Act contains a definition of “eligible lease”, which requires the tenant to be an SME entity and an employer who qualifies for and is a participant in the JobKeeper scheme. This prescriptive definition will be removed, so that the eligibility requirements for rent relief can be included in the regulations made under the Act. The second reading speech indicated that this amendment “will confirm the Government’s intent that sole traders are eligible to participate if they are participating in JobKeeper and will increase flexibility for the Government to adjust as the JobKeeper program evolves.
- The Victorian Small Business Commission will be given the power to make binding orders following on from mediations between the tenant and the landlord in certain circumstances. Applications may then be made to VCAT to enforce the binding orders or dispute the binding orders made by the Victorian Small Business Commission. The new regulations are expected to set out the scope of these new powers.
It is important that both landlords and tenants continue to pursue rent relief negotiations and remain compliant with their respective obligations under the Act and the Regulations.
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.