May 15, 2020

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Small Business Commission FAQs about the Regulations published

The Victorian Small Business Commission has published a FAQ guideline on the operation of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic).

The Commission’s FAQs are available here: https://www.vsbc.vic.gov.au/fact-sheets-and-resources/faqs/

The FAQs address many the important questions that practitioners are asking about the Regulations.  All practitioners dealing with applications for rent relief (whether for a landlord or a tenant) should be familiar with the FAQs and should consider providing them to their clients.

A lot of practitioners have been asking what information a tenant must provide to their landlord in their application for rent relief.  The FAQs contain the following questions and answers:

What turnover information is appropriate for a landlord to request from the tenant to help inform their offer of rent relief?

A landlord can ask the tenant for information:

      • extracted from an accounting system
      • extracted from BAS
      • provided to a financial institution.

What turnover information is not appropriate for a landlord to request from a tenant to help inform their offer of rent relief?

A landlord should not:

      • request future cash flow projections
      • request balance sheets, profit and loss or year to date financials
      • request the tenant’s bank balance
      • require the financial information to be verified, examined, assured, audited or provided by a third party such as an accountant
      • require an accountant to provide a letter of comfort or similar on the financial information.

The answers to those questions provide useful guidance on what information is expected to be provided.  However, a tenant may choose to provide more information if it wants to.  The decision about whether to provide more information and, if so, what information to provide is a difficult one that needs to be assessed on a case-by-case basis.  Experienced lawyers can provide valuable advice to their clients by guiding them through the difficult decisions that their client’s need to make.

May 11, 2020

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Update on the new Regulations – landlord’s requirement to offer an extension of the lease term under the Regulations

In an earlier note I suggested that the landlord needs to offer to its tenant an extension of the lease term by up to 24 months.  However, it has been pointed out to me that the extension that the landlord needs to offer may be less than that.

Regulation 13 states that (emphasis added):

Extension of the term

(2)       If the payment of any rent is deferred by variation of an eligible lease or an agreement mentioned under regulation 10(6), the landlord under the eligible lease must offer the tenant under the eligible lease an extension to the term of their eligible lease on the same terms and conditions that applied under the eligible lease before the commencement of these Regulations.

(3)       The extension offered under subregulation (2) must be equivalent to the period for which rent is deferred, unless a landlord and a tenant agree in writing that this regulation does not apply to their eligible lease.

Regulation 16 states that:

Payment of deferred rent

(2)       If any rent is deferred by variation to the eligible lease or an agreement as mentioned under regulation 10(6)—

(b)       a landlord and tenant must vary the eligible lease or otherwise agree so that tenant must pay the deferred rent to the landlord amortised over the greater of—

(i)         the balance of the term of the eligible lease, including any extension to that term, as provided under regulation 13 or otherwise; and

(ii)        a period of no less than 24 months.

The issue is what is meant by the phrase ‘the period for which the rent is deferred’.  The better view is probably that the period for which the rent is deferred is the deferral period (ie the period during which the rent is not paid), not the repayment period.  Consequently, if the rent is deferred over a six month period but repayable over a 24 month period, the tenant is entitled to an extra six months in its lease term.

Consider this example:

  1. The tenant has a lease that expires on 30 June 2023.
  2. Landlord and tenant agree on 70% rent relief for the six months of the Regulations (half of which is deferred), with the deferred rent being payable by equal monthly instalments from 30 September 2020 until 30 June 2023.
  3. Under reg 13, the landlord must offer to the tenant an extra six months on its lease term, extending the term until 31 December 2023.
  4. The deferred rent is payable by 31 December See regulation 16(2)(b)(i).

Also, consider this example:

  1. The tenant has a lease that expires on 31 December 2020.
  2. Landlord and tenant agree on 70% rent relief for the six months of the Regulations (half of which is deferred), with the deferred rent being payable by equal monthly instalments from 30 September 2020.
  3. Under reg 13, the tenant must be offered an extension of its lease by six months, being an extension to 30 June 2021.
  4. Under reg 16(2)(b), the tenant has until 30 September 2022 to repay the deferred rent.

The second example means a tenant still paying the deferred rent after the lease has ended (see reg 16(2)(b)).

Thanks to Mark Schramm from the Small Business Commission for his assistance, and to Abilene Singh and Jamie Bedelis.

May 2, 2020

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First observations about the new landlord and tenant regulations

Well, the new Regulations contain a few surprises with some wins for each of landlords and tenants respectively.

The Regulations broadly follow the scheme of the Code with a number of notable exceptions. Abi and my preliminary comments are set out below.

First, as expected, the Regulations operate for the period 29 March 2020 to 29 September 2020.  The retrospective operation of the Regulations is not qualified (unlike the WA Bill discussed in an earlier post).

Secondly, unlike in the Code, the amount of rent relief offered by landlords to tenants does not need to be directly related to the reduction in the tenant’s turnover.

Instead, the tenant must make a written request to the landlord for rent relief that contains a statement by the tenant that it is an eligible lease that is not excluded by the corporate group provisions of the Act and evidence that the tenant is an SME that qualifies for and participates in the JobKeeper scheme.

Once that request is made, the landlord has 14 days (or a different timeframe by agreement) to make an offer for rent relief.

The terms of the landlord’s offer are governed by reg 10, which includes the following (emphasis added):

(4)       A landlord’s offer of rent relief under subregulation (3) must be based on all the circumstances of the eligible lease and:

(a)       relate to up to 100% of the rent payable under the eligible lease during the relevant period; and

(b)       provide that no less than 50% of the rent relief offered by the landlord must be in the form of a waiver of rent, unless a landlord and a tenant otherwise agree in writing; and

(c)        apply to the relevant period; and

(d)       take into account

(i)        the reduction in a tenant’s turnover associated with the premises during the relevant period; and

(ii)        any waiver given pursuant to regulation 14(2); and

(iii)       whether a failure to offer sufficient rent relief would compromise a tenant’s capacity to fulfil the tenant’s ongoing obligations under the eligible lease, including the payment of rent; and

(iv)       a landlord’s financial ability to offer rent relief, including any relief provided to a landlord by any of its lenders as a response to the COVID-19 pandemic; and

(v)        any reduction to any outgoings charged, imposed or levied in relation to the premises.

(OK, so most of it is in bold, but you get the drift.)

Following receipt of the landlord’s offer, the landlord and tenant are required to negotiate rent relief in good faith (see reg 10(5)).

Our observations about this regulation are:

  1. The landlord’s offer must ‘be based on all the circumstances of’ the eligible lease. This is quite broad and allows significant latitude in the terms of the landlord’s offer.
  2. However, that latitude is restricted because the offer must ‘take into account’ each of the items listed in (d)(i) to (v). It is important to note that:
    • the phrase ‘take into account’ has been litigated in the context of rental determinations and has analogies in administrative law. The Regulations do not prescribe how the landlord’s offer takes the relevant considerations into account, but the offer will need to do more than merely ‘pay lip-service’ to each consideration.  What that means in practice will vary case-by-case;
    • the reduction in the tenant’s turnover is the first enumerated consideration but, unlike what was suggested by the Code, the rent relief offered does not necessarily need to be directly proportional to the reduction in the tenant’s turnover;
    • the tenant’s ability to fulfil its obligations under the lease (ie the tenant’s current and future solvency) is a consideration;
    • importantly, so too is the landlord’s financial capacity (including any relief provided by its lenders). This is important, as the Leasing Principles in the Code made little reference to the landlord’s financial capacity and this has been a source of significant consternation throughout the profession.  Consequently:
      • if the landlord is a retiree with no income except the income from the lease, this may be taken into account in the landlord’s offer; and
      • similarly, if the landlord is highly leveraged and its lenders have provided only limited extensions on its loans, then this, too, is a consideration; and
    • also, regulation 14(2) (referred to in (ii) above) requires the landlord to consider waiving outgoings if the tenant is not able to operate its business from the premises.

Consequently, we think it’s fair to say that there are a couple of wins for landlords here.

Importantly, the offer must ‘be based on all the circumstances of’ the eligible lease.  This is potentially quite broad.  One area of discussion in recent weeks has been the treatment of a tenant that is not required to close, but has elected to nonetheless (either for health and safety reasons because it is uneconomic to open its doors).  Under Reg 10(4), this will be a relevant consideration.  For example, if a tenant (such as a gymnasium) was required to close completely, it’s revenue might have been completely lost.  On the other hand, a café may have elected to close rather than trade with takeaway or delivery services only.  In the second case, the fact that the tenant could have traded would (at least arguably) be a relevant circumstance to take into account in the landlord’s offer.

Thirdly, it is clear that 50% of the rent relief must be a waiver.  However, unlike the Code, it is a little unclear whether the other 50% must be a deferral.

The Regulations contain the following definition:

rent relief means any form of relief provided to a tenant in respect of the obligation under an eligible lease to pay rent, including a waiver, reduction, remission or deferral of rent;

Regulation 10 (set out above) does not refer to deferrals.

However, once 50% of the rent relief is offered as a waiver, it is difficult to see what the other 50% would be other than a deferral. Consequently, we suspect that most offers will need to involve some form of deferral.

Regulation 16 states that:

(2)        If any rent is deferred by variation to the eligible lease or an agreement as mentioned under regulation 10(6)—

(a)        a landlord under the lease must not request payment of any part of the deferred rent until the earlier of—

(i)         expiry of the relevant period; and

(ii)        expiry of the term of the eligible lease (before any extension as provided under regulation 13 or otherwise); and

(b)        a landlord and tenant must vary the eligible lease or otherwise agree so that tenant must pay the deferred rent to the landlord amortised over the greater of—

(i)         the balance of the term of the eligible lease, including any extension to that term, as provided under regulation 13 or otherwise; and

(ii)        a period of no less than 24 months.

(3)        The method by which the deferred rent is amortised for the purposes of subregulation (2) is to be agreed to by the landlord and tenant.

(4)        Subregulation (2) does not apply if a landlord and a tenant agree otherwise in writing.

Accordingly, to the extent that a deferral is agreed, the tenant has the greater of 24 months or the balance of the lease term to pay the deferred rent.

Also, reg 13 states that:

(2)        If the payment of any rent is deferred by variation of an eligible lease or an agreement mentioned under regulation 10(6), the landlord under the eligible lease must offer the tenant under the eligible lease an extension to the term of their eligible lease on the same terms and conditions that applied under the eligible lease before the commencement of these Regulations.

(3)        The extension offered under subregulation (2) must be equivalent to the period for which rent is deferred, unless a landlord and a tenant agree in writing that this regulation does not apply to their eligible lease.

The combined effect of these provisions seems to be that a tenant with less than 24 months left to run on their lease must be offered an extension of their lease to allow up to 24 months to pay any deferred rent that is agreed. [#This post has since been corrected.  See entry on 11 May 2020, here: https://samhopperbarrister.com/2020/05/11/update-on-the-new-regulations-landlords-requirement-to-offer-an-extension-of-the-lease-term-under-the-regulations/ ]

Fourthly, it remains unclear what financial information the tenant will need to provide to its landlord.

The Small Business Commission has foreshadowed a guideline on the financial information to be provided.  However, whatever that guideline ends up saying, given the discretion in the terms of the offer given to the landlord, we think it would be prudent for a tenant to provide at least some trading figures to their landlords because it is difficult for the landlord to take into account the tenant’s ability to pay the reduced rent without at least some financial information.

Fifthly, if the tenant’s financial circumstances materially change during the period of the Regulations, the tenant can make a further request for rent relief.  What constitutes a material change is not defined, so will need to be assessed on a case-by-case basis.

The process of the landlord’s offer of rent relief is then repeated, although the landlord is not required to offer 50% of the rent relief as a waiver.  The substantial effect seems to be that the landlord only has to offer further deferrals the second time around if the tenant can show that its financial circumstances have materially changed.

Sixth, agricultural leases have been excluded from the Regulations.  This comes as something of a surprise, as we were not aware of this having been raised previously.

Seventh, under regulation 14:

(2)       A landlord under an eligible lease must consider waiving recovery of any outgoing or other expense payable by a tenant under the eligible lease for any part of the relevant period that the tenant is not able to operate their business at the premises.

(3)       If a tenant under an eligible lease is not able to operate their business at the premises for any part of the relevant period, the landlord may cease to provide, or reduce provision of, any service at the premises—

(a)       as is reasonable in the circumstances; and

(b)       in accordance with any reasonable request of the tenant.

It is not clear what is meant by a tenant being ‘not able to operate’.  In particular, it is not clear whether this means a tenant is prohibited from trading completely (such as a gym) or a tenant that has elected to close for safety reasons or because it is not economically viable to open keep its doors open.

Eighth, other features of the Regulations include:

  • the definition of ‘security’ protected by the Regulations is extended to include indemnities, which overcomes a drafting gap in the Code and the Act;
  • ‘turnover’ is defined by reference to s 5(2)(a) to (g) of the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Response Package) Rules 2020 (Cth).  We will try to post that definition in a future post;
  • a prescribed group of companies that is excluded from the Regulations is defined by reference to ss 328-125 and 328-130 of the Income Tax Assessment Act 1997 (Cth). Again, we will try to post those definitions in a future post;
  • all eligible leases are amended to impose an obligation to cooperate and act reasonably and in good faith in discussions and actions associated with matters to which the Regulations apply;
  • a tenant is only entitled to protection from termination for non-payment of rent if it makes a request in accordance with regulation 10 (discussed above) and complies with any subsequent agreement to vary the lease;
  • civil penalties of up to 20 penalty units (about $3,600) can be imposed on landlords for terminating a lease, taking possession or having recourse to securities based on non-payment of rent or reductions in trading hours during the period of the Regulations.  Curiously, these penalties apply retrospectively and also to ‘attempts’ by landlords;
  • agreements for rent relief can be by amendment to the lease or a side agreement.  However, as is always the case when dealing with land, it is still important to record the agreement in a note signed by both parties;
  • as expected, there is a prohibition on rent increases during the period of the Regulations;
  • if outgoings are reduced (eg land tax for non-retail leases or Council rates), then the landlord must reduce the amount payable by the tenant and reimburse them for overpayments since 29 March 2020;
  • as expected, no fees, interest or charges can be levied for late payment of rent deferred rent;
  • as expected, leases cannot be terminated for closures or a reduction in trading hours;
  • landlords and tenants must not divulge or communicate personal, business process or financial information obtained under or in connection with the Regulations, save in specified circumstances;
  • as expected, a regime for mediation under the Regulations is created that mirrors the regime created under the Retail Leases Act 2003 (Vic).  Landlords and tenants may be represented by lawyers at those mediations, but mediators may request a meeting without lawyers present;  and
  • parties can choose to go to either VCAT or the Court to have disputes under the Regulations determined.  If parties go to VCAT, the ‘no cost’ rule in s 92 of the Retail Leases Act 2003 (Vic) applies.

Finally, the following, however, remain unclear:

  • there is no definition of a ‘reasonable recovery period’ referred to in the Code;
  • the extent to which agreements reached prior to the Regulations being handed down remain in force.  Given the encouragement from government to do deals ahead of time.  We expect that existing deals will not be disturbed by the Regulations, but the document remains unclear on the issue;
  • how a Court or the Tribunal will determine the rent relief if the parties cannot agree through mediation and how will the good faith obligations be treated;  and
  • the extent of the financial material to be provided by the tenant to the landlord (discussed above).

Sam Hopper and Abilene Singh

May 1, 2020

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Victorian Regulations have been published…

The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) have just been published and are available here: Omnibus Regs

Abi and I will write a summary shortly.

April 28, 2020

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Link to last week’s webinar

For those who have not seen it but still want to, here is the link to last week’s webinar that Abilene Singh and I presented: https://www.greenslist.com.au/media/Coronavirus-and-Victorian-retail-and-commercial-tenancies

Links to our slides and the Commonwealth Code are attached to the last couple of posts on this blog, which you should have to hand when viewing the webinar.

A few people have asked me over the last few days when the Victorian Regulations are due.  I can’t offer any insight at this stage, other than to say “any day now!”

April 27, 2020

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NSW landlord and tenant regulations passed

The New South Wales government has produced regulations to give effect to the National Cabinet Mandatory Code of Conduct for landlords and tenants.

We have not yet see the Victorian equivalent and it is not clear whether Victoria’s regulations will follow a similar model or take a different approach.  However, it is already apparent that there are some differences between the two states.

A copy of the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) can be found here: https://www.legislation.nsw.gov.au/#/view/regulation/2020/175/id2

Highlights of the NSW Regulations include:

  1. The landlord of a commercial lease to which the NSW Regulations apply is prohibited from taking any action (including terminating the lease, taking possession of premises, claiming interest, claiming a deposit or suing on a guarantee) because the tenant failed to pay rent, pay outgoings or operate its business at the leased premises for six months after the NSW Regulations commence.  (Indemnities are not mentioned.)
  2. Rent must not be increased during that six months period.  It is unclear if the rent increase is waived or deferred.
  3. Reductions in land tax and other statutory charges (such as council rates) are  passed on to tenants.
  4. The NSW Regulations apply on their face only to leases and do not appear to apply to licences.  Unlike the Victorian Act, it is unclear whether a franchisee outlet licence will be protected by the NSW Regulations.
  5. It appears that the NSW Regulations are effective from 24 April 2020 (although it is no entirely clear on my reading of the Regulations – on one view they may have taken effect on 25 April 2020, but that is unlikely as it is was both a Saturday and ANZAC Day).
  6. The NSW Regulations automatically sunset six months after their commencement, which is stated to be 24 October 2020.
  7. An ‘impacted lessee’ is a lessee that: (a) qualifies for JobKeeper (unlike the Victorian Act, there is no requirement to ‘be a participant in’ the JobKeeper scheme);  and (b) has a turnover of under $50M in FY2018-2019 (unlike the Victorian Act, eligibility cannot be based on FY2019-20).
  8. If the lessee is a franchisee, turnover is determined by the turnover of the business conducted at the premises or on the land concerned.  If the lessee is a member of a group, it is based on the turnover of the group.  In any other case, it is based on the turnover of the business conducted by the tenant.  (It is unclear how a franchisee that owns various outlets and numerous corporate entities would be treated, but they may well be few in number).
  9. Turnover of a business includes internet sales.
  10. The definition of a corporate group from the Corporations Act 2001 (Cth) is adopted.  It will be interesting to see whether Victoria adopts a broader approach (as the Victorian Act suggests).
  11. The NSW Regulations do not apply to leases entered after the Regulations commenced, except options for an extension or renewal of a pre-existing lease.
  12. Any act or omission by a tenant that is required by law in response to the COVID-19 pandemic is taken not to be a breach of the lease or grounds for termination.
  13. The parties can contract out of the NSW Regulations.  However, if the tenant agrees to pay rent during the six months of the operation of the NSW Regulations, the landlord must mediate before taking any of the prescribed actions (including terminating the lease, taking possession of premises, claiming interest, claiming a deposit or suing on a guarantee).
  14. Either party to an impacted lease covered by the NSW Regulations can request a mediation and the parties are required to attend mediation and renegotiate the rent and other terms of the lease in good faith, ‘having regard to’ the economic impacts of the COVID-19 pandemic and the leasing principles set out in the National Code.  The Regulations make specific reference to leasing principles 3-5, 7-10 and 12 and point out that “leasing principle No. 3 in the National Code of Conduct requires landlords to offer rent reductions, in the form of waivers or deferrals of rent, proportionate to lessees’ reductions in turnover”.  However, it is unclear whether and to what extent the parties are bound by those leasing principles, particularly given: (a) the use of the phrase ‘having regard to’;  and (b) that some of the leasing principles in the National Code are expressed to be discretionary while others are mandatory.
  15. The Regulations do not prevent landlords taking action against their tenants on grounds that do not relate to the economic impact of COVID-19.

Also, the NSW Regulations contain this at Reg 9:

The Tribunal and any court, when considering whether to make a decision or order relating to any of the following, is to have regard to the leasing principles set out in the National Code of Conduct—

(a)   the recovery of possession of premises or land from a lessee,
(b)   the termination of a commercial lease by a lessor,
(c)   the exercise or enforcement of another right of a lessor of premises or land.

We will need to see in due course how this regulation is interpreted and applied, and it will, no doubt, be the subject of further debate.  However, on one view at least, it appears require the Courts to consider leasing principles in the National Code when considering an actions against tenants to which the NSW Regulations do not apply, which may include new leases and leases for tenants with a turnover above the $50M threshold.

April 24, 2020

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Webinar slides

To add to my technical woes today, my PowerPoint slides did not attach to my last post.

Here they are: COVID-19 webinar (24 April 2020)

After the technophobic day that I have had, all I can say is … TGIF!

Stay safe and keep practicing your social distancing, folks.

April 24, 2020

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Webinar update – thanks, apologies and spoiler alert!

OK, so we had some technical problems in today’s webinar.  Thanks for those who attended and sorry we left you hanging on the line.

We recorded the webinar and it is being edited.  We expect to post it in the next few days.  I will post a link when it is available.

In the meantime, I have attached a copy of Abi and my PowerPoint slides.  You will need a copy of the Code with you to make sense of them: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

Thanks also to everyone who sent questions to us.  We have tried to address most of the questions in the second half of the attached slides.

Spoiler alert – here is a summary of the take-home points from the webinar.

The Act is only enabling legislation.  We will need to wait until we see the Regulations before we know the details of the emergency measures for landlords and tenants.  We will try to conduct another webinar when the Regulations are published.  There are, however, a few things that we have learned from the Act.

First, the Regulations will apply to SMEs with a turnover of under $50M.  Although this is in the Code, some states seem to be heading in a different direction (WA in particular). Also, it applies if the SME has a turnover of under $50M in either the preceding financial year or this financial year, so the downturn caused by COVID-19 could bring some entities into the Regulations.

Secondly, the Regulations will apply to an employer who qualifies for ‘and is a participant in‘ JobKeeper.  The requirement to be ‘a participant in’ the JobKeeper scheme is new and is not in the Code.

Thirdly, the Regulations will apply to licences as well as leases, which will capture franchisee outlet licences and co-working spaces (provided they are used for businesses).

Also, on our reading, it applies to head lease and sub-lease/licence separately.  Consider, for example, a franchisor with a turnover of over $50M that takes a head lease and grants an outlet licence to a franchisee.  The franchisor may be answerable to the landlord for the rent without the protection of the Regulations, while the franchisee would have the protection of the Regulations with respect to the licence fee payable to the franchisor.

Fourthly, revenue for the $50M cap will be assessed on a group basis.  ‘Group‘ looks like it will have quite a wide definition and is likely to include companies that are under the same effective control or sphere of influence, even if not strictly related in the usual way (ie parent or sibling companies).

Fifthly, the Regulations will have retrospective effect from 29 March 2020 in order to capture rent that fell due on 1 April 2020 and will sunset on 29 September 2020.  It is not clear how this retrospectivity will operate at this stage (eg the WA Bill allows for a form of partial retrospectivity that does not invalidate acts already completed).

Sixthly, mediation will be conducted at the Small Business Commission and will follow a similar model to the requirement to mediate under the RLA 2003.

We do not have a release date for the Regulations, but they are expected any day.

It is wise for landlords and tenants to start negotiating now (if they have not already).  If a landlord or tenant think they can get a better deal than the Code and Act suggest, it is a good bet to do that deal now, before the Regulations are handed down.  Be wary, however, that the Regulations may have retrospective effect.  It is unclear what the legal validity will be of pre-negotiated lease variations (although it seems unlikely that they will be invalidated).

If you cannot do a deal now, we suggest the following:

  1. Eligible tenants should get onto JobKeeper now to get the benefit of the Regulations when they are passed.
  2. Tenants should also be putting together evidence of the downturn in their trade/revenue and should engage with their accountants if appropriate.
  3. If you think a deal is unlikely even after the Regulations are passed, apply to the OSBC for mediation early. There will be a lot of mediations and the queue for a mediations is likely to be long.

My particular thanks to Abilene Singh for co-presenting the webinar.

April 23, 2020

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New emergency Act passed by Victorian Parliament

The much-anticipated emergency measures Bill has been tabled in Victorian Parliament today to create legislation to give effect to the Code and was passed this afternoon.

However, the Act is only ‘enabling legislation’, ie it is legislation that allows the creation of regulations that give effect to the Code, recently published by the National Cabinet.

At this stage, we have not seen a copy of the Regulations, so do not know what they will look like, although the Act gives us some indications about what to expect.

Highlights of the Act are:

  • it allows regulations that apply to commercial licences to occupy land for the business purposes, not just to leases.  That means that a franchisee’s outlet licence should be protected by the Code;
  • it defines an ‘eligible lease’ as one that was in effect when the proposed Regulations come into operation and where the tenant is an SME entity and an employer who qualifies for and is a participant in the jobkeeper scheme;
  • it excludes from the definition of eligible lease a group of companies with an aggregate turnover above the prescribed amount.  The Act does not state the prescribed amount, but at this stage we expect that to be $50M.  The Regulations have the ability to define a group quite widely;
  • the Act allows for Regulations that affect the operation of eligible leases.  These are quite diverse, and include:
    • prohibiting the termination of eligible leases;
    • changing periods in the lease by which someone must or may do a thing;
    • changing or limiting other rights or exempting a landlord or tenant from complying with an obligation under an eligible lease or other statute;
    • modifying the operation of an eligible lease or the application of other statutes to those leases;
    • extending the term of an eligible lease;
    • deeming a provision of the regulations to form part of an eligible lease;
    • imposing new obligations on landlords and tenants under an eligible lease, including requiring them to negotiate amendments to an eligible lease;  and
    • modifying or exempting compliance with agreements related to eligible leases, which would, presumably, include guarantees and may also extend to indemnities;
  • it allows regulations that create a regime for mediation before litigation about the terms of an eligible lease at the Small Business Commission;
  • it allows Regulations imposing penalties not exceeding 20 penalty units, which may create offences for non-compliance with the Regulations;
  • regulations under the Act may have retrospective effect from a date no earlier than 29 March 2020.  Curiously, the Code purports to have effect from 3 April 2020;
  • the usual requirement for public consultation and the preparation of a regulatory impact statement are abolished, but the Regulations may be overruled by a either House of Parliament;  and
  • the Act and any Regulations will sunset in 6 months after commencement.

Unlike the WA Bill referred to in an earlier post, the Victorian Act does not expressly allow financially distressed tenants to terminate their leases, despite apparent calls for an amendment to that effect from one member of the upper house! See: https://www.commercialrealestate.com.au/news/victorian-politician-calls-for-early-termination-clause-in-covid-19-relief-bill-950088/?utm_campaign=featured-masthead&utm_source=the-age&utm_medium=link

Finally, we invite readers to admire the fact that the Bill rejoices in the name COVID-19 Omnibus (Emergency Measures) Act 2020.

Sam Hopper and Abilene Singh