Apartments and office buildings

A practical checklist: What landlords and tenants need to know when negotiating rent relief for eligible leases

Emma Dunlevie, Mark McKinley and Samantha Taylor
COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic)

Our property team published an Insight on 15 April 2020 outlining the National Cabinet’s Mandatory Code of Conduct for Commercial Leases (Code). The Code was implemented in Victoria through the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) (COVID-19 Act) and the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (Regulations). The Regulations were published on 1 May 2020 and are in effect from 29 March 2020 to 29 September 2020 (relevant period).

The COVID-19 Act and the Regulations provide a legal framework for COVID-19 related lease negotiations in Victoria for eligible leases.[1] Below is an overview of the procedure to be followed by landlords and tenants when negotiating rent relief for eligible leases.

  1. Overarching obligation

    The Regulations impose an overarching obligation on the landlord and tenant to cooperate, act reasonably and act in good faith when negotiating rent relief pursuant to the Regulations.

  2. Commencing the process

    The process must be commenced by a tenant requesting rent relief from a landlord in accordance with the Regulations. This means:

    1. The tenant must submit a request to the landlord in writing.
    2. The request must be accompanied by a statement from the tenant that the tenant’s lease is an eligible lease and the lease is not excluded from the operation of the Regulations. Information must also be supplied evidencing the tenant is an SME entity[2] and the tenant qualifies for and is a participant in the JobKeeper scheme.

  3. Time frame for landlord’s offer of rent relief

    The landlord must offer rent relief to the tenant within 14 days after receiving the request. The parties may agree to a longer period.

  4. Relevant considerations for a landlord

    The landlord’s offer of rent relief must be based on all the circumstances of the eligible lease and must:

    1. relate to up to 100% of the rent payable under the eligible lease during the relevant period;
    2. unless the landlord and tenant otherwise agree in writing, provide that no less than 50% of the rent relief offered by the landlord is in the form of a waiver of rent;
    3. apply to the relevant period;
    4. take into account the tenant’s reduction in turnover associated with the premises during the relevant period, any outgoings waived in accordance with the Regulations, and whether a failure to offer a sufficient rent relief impacts the tenant’s ongoing obligations under the eligible lease;
    5. take into account the landlord’s financial ability to offer rent relief, including any relief provided by the landlord’s lenders as a response to the COVID-19 pandemic; and
    6. take into account any reduction in outgoings charged, imposed or levied in relation to the premises.

  5. Deferral of rent

    Where rent is deferred:

    1. the landlord cannot request repayment of any part of the deferred rent until the earlier of the expiry of the relevant period (being 29 September 2020) or expiry of the term of the eligible lease (before any extension is provided);
    2. any repayments of deferred rent must be amortised over the greater of the balance of the term of the eligible lease (including any agreed extensions) and a period of no less than 24 months; and
    3. the landlord must offer the tenant an extension equivalent to the period of deferral on the same terms and conditions that applied to the eligible lease before the commencement of the Regulations (being 29 March 2020).

  6. Documenting the agreement

    Any agreement must be documented by the parties (ideally via a deed of variation) and signed by both parties.

  7. Dispute resolution
    If the parties cannot reach agreement regarding rent relief or any other matter addressed by the Regulations, the dispute may be referred by either party to the Victorian Small Business Commission for a mediation. 

Where a tenant complies with the Regulations and continues to pay rent in accordance with any agreed variation, the tenant is not in breach of the lease and the landlord cannot terminate and re-enter the premises for the tenant’s failure to pay rent in accordance with the original lease terms.

How we can help

It is important for landlords to understand the requirements of the new Regulations and consider the circumstances of their leases on a case by case basis before making offers to tenants. Landlords are required to take into account all the particular circumstances of the eligible lease (and not necessarily just turnover information). Tenants must also be aware of their rights under the Regulations, and the process that must be followed under the Regulations when seeking rent relief during the pandemic period.

For further advice on compliance with the COVID-19 Act, the Regulations or a commercial leasing strategy in respect of your lease or leasing portfolio, please contact Mark McKinleyEmma Dunlevie or Samantha Taylor

If you would like to keep in touch with Alerts and Insights from our expert Property team, you can subscribe to our mailing list here.

[1] An SME entity is an entity which carries on a business or is a not-for-profit and whose turnover is less than $50 million during the current year or the previous year. See Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Rules 2020 (Cth).

[2] An eligible lease is defined as a retail lease or a non-retail commercial lease or licence that is in effect on 29 March 2020 and the tenant under the lease is an SME entity and is an employer which qualifies for the JobKeeper scheme and is a participant in that scheme. Leases for agricultural, farming, pastoral and horticultural purposes are excluded from the definition of eligible lease.

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