February 9, 2021

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And another thing…

… for those interested in the PS Market decision referred to in my last post, you can see another detailed discussion here: https://www.easternbridge.com.au/post/update-11-effects-of-covid-19-on-commercial-tenancies

… and for those interested in the C B Buffet decision from late last year, you can see another detailed discussion here: http://melbournepropertylaw.blogspot.com/2021/01/are-there-any-cases-about-victorian.html

As usual, I will try to forward copies of relevant material as it comes to hand.

February 9, 2021

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Welcome back to 2021 and to two decision from VCAT about the CRTRS

Welcome back to everyone.  I hope you all had a good break and that 2021 is as interesting as 2020 – but hopefully less stressful!

Since my last post there have been two new cases from VCAT considering application of the CTRS.  The short points are:

  1. in PS Market Pty Ltd v Brijcam Nominees Pty Ltd (Building and Property) [2020] VCAT 1468 Member Kincaid held that a tenant was not entitled to protection from re-entry under Reg 9 of the CTRS Regulations because the tenant was not entitled to JobKeeper and, in those circumstances, it was not unconscionable conduct for the landlord to refuse to provide rent relief;  and
  2. in Filomeno Nominees Pty Ltd v Crown Group Pty Ltd (Building and Property) [2021] VCAT 81, Senior Member Forde held that the tenant was not entitled to protection from re-entry under reg 9 of the CTRS Regs because it had not made an application for rent relief that complied with the requirement of Reg 10(2).

The cases are discussed in more detail below.

PS Market Pty Ltd v Brijcam Nominees Pty Ltd (Building and Property) [2020] VCAT 1468

Member Kincaid at VCAT published reasons on 24 December 2020 refusing to grant an injunction to a tenant that was not entitled to Jobkeeper, and accordingly was not entitled to rent relief under the CTRS.  The tenant also argued that it was unconscionable not to be given rent relief. 

In refusing the application, the Member made three important findings.

First, the tenant itself was not an employer of staff in the relevant business.  In this case, the tenant was a member of a group of companies and staff were employed by the tenant’s parent company.  

This is an issue that seems to have come up in quite a few CTRS negotiations and there are a number of possible ‘work-arounds’.  

In this case, the Tribunal considered and rejected two of the possible arguments as follows:

43        I take one of his submissions during argument to the effect that if another entity (in this case, the alleged parent company14) in a group of companies of which a tenant is part is entitled to a jobkeeper payment under section 6 of the Jobkeeper Rules, then the tenant should, in effect, be regarded as being entitled to a jobkeeper payment under section 6 of the Jobkeeper Rules. I cannot accede to this argument, having regard to the plain meaning of the words of Regulation 4A of the Amended Regulations and Section 6 of the Jobkeeper Rules, which make it clear that it is the relevant tenant that it is required to be the entity, as an employer, entitled under Section 6 to a jobkeeper payment.

44        Mr Levine’s written submissions also rely on Section 6(b) of the Jobkeeper Rules, stating that the applicant also “qualifies for the jobkeeper scheme at or before the end of the fortnight” within the meaning of section 6(b) of the Jobkeeper Rules because the applicant has satisfied the decline in turnover test at or before the relevant time within the meaning of Section 7(1)(b) of the Jobkeeper Rules. He submitted that the decline in turnover is in the current circumstances assessed on a group basis pursuant to the provisions of section 8A of the Jobkeeper Rules. I reject this argument. Section 8A simply provides a modified test for assessing the relevant decline in turnover required by Section 7(b) of the Jobkeeper Rules in order to qualify for the jobkeeper scheme within the meaning of section 6(b) of the Jobkeeper Rules.

Secondly, the Tribunal also considered an argument that the tenant was an eligible business participant and rejected that argument because of difficulties in the tenant’s affidavit material (see paragraphs [53] to [60] of the Tribunal’s reasons).

Thirdly, the tenant argued that it was unconscionable for the landlord to refuse to provide rent relief during the pandemic, even if the Code and the CTRS did not strictly apply.  The argument was put on the following basis:

69        The applicant submits that the Notice of Default was served in breach of the standards of behaviour established by the Code of Conduct and the Covid-19 legislation promulgated, it is submitted, in order for parties to all commercial leases to work together in an unprecedented crisis caused by the Covid-19 pandemic, and has thereby engaged in conduct that is unconscionable. It also submits that the respondent has acted unconscionably in failing to recognise the damage that will be caused to the tenant and “its related group entities” by re-entry, when “the respondent itself will be able to avail itself of relief from statutory charges and mortgage payments”.

70        The applicant also submits that the Code of Conduct is an “applicable industry code” within the meaning of Section 77(2)(g) of the RLA providing a set of principles to which regard should be had when evaluating whether there has been unconscionable conduct on the part of the respondent.

The Tribunal rejected these arguments, holding that:

71        The Code of Conduct states:

This Code comes into effect in all states and territories from a date following 3 April 2020 (being the date that National Cabinet agreed to a set of principles to guide the Code to govern commercial tenancies as affected by the COVID-19 pandemic) to be defined by each jurisdiction, for the period during which the Commonwealth JobKeeper programme remains operational (emphasis added).

72        The proposition that notwithstanding that the tenant was in substantial arrears in respect of rent from 1 April 2020, and there being no serious question as to its not being entitled under the Covid-19 legislation to rent relief, the respondent was acting unconscionably by serving the Notice of Default cannot, without more, be sustained. I find on the evidence that there is no serious question to be tried concerning the alleged unconscionable conduct of the respondent in serving the Notice of Default.

I make the following observations about this decision:

  1. the tenant’s case that it is has eligible lease under the CTRS because it is an eligible business participant in Jobkeeper was rejected largely because of shortcomings in the tenant’s affidavit material.  Consequently, we will need to wait for another case to find out the Tribunal’s view on whether a business participant in Jobkeeper is entitled to rent relief; 
  2. it is well-established that a lease may be granted to the agent of an undisclosed principal.  Arguments about agency are being used in many CTRS cases in response to perceived problems with eligibility.  So far as I am aware, the role of agency principles in the CTRS is yet to be considered in any cases;  and
  3. I am aware of a number of tenants pressing arguments that it is unconscionable to deny relief to a tenant whose lease is not eligible under the CTRS, so the effect of the third finding is likely to be significant.  However, a decision of a VCAT member is not binding, so I suspect that we may see that argument arising again in the not-too-distant future.

Filomeno Nominees Pty Ltd v Crown Group Pty Ltd (Building and Property) [2021] VCAT 81

In this case the tenant had not paid rent or outgoings since 1 April 2020.  The landlord served a notice of default alleging non-payment of rent on 30 September 2020 and re-entered the leased premises on 9 October 2020.

The tenant sought an injunction to restore its possession of the premises, arguing that it was entitled to protection from eviction under Reg 9 of the CTRS Regulations.  

The tenant relied at the hearing on three different requests for rent relief.  

Most readers will recall that Regs 10(1) and (2) of the first version of the CTRS Regulations state that:

(1)       A tenant under an eligible lease may request rent relief from the landlord under the eligible lease.

(2)       A request under subregulation (1) must be in writing and be accompanied by—

(a)       a statement by the tenant that the tenant’s lease is an eligible lease and the lease is not excluded from the operation of these Regulations under section 13(3) of the Act; and

(b)       information that evidences that the tenant—

(i)        is an SME entity; and

(ii)       qualifies for, and is a participant in, the jobkeeper scheme.

Most readers will also recall that Reg 10(2) was substantially amended when the CTRS Regulations were amended on 29 September 2020.  

Each of the requests for rent relief considered by the Tribunal were made before the second version of the CTRS Regulations were published, so the Tribunal considered whether the requests complied with the original version of Reg 10(2).

One argument that has been in circulation is that the September 2020 version of the CTRS Regs have retrospective effect because the amended Regs appeal, on their face, to have a start date of 29 March 2020.  That argument always had difficulties.  Senior Member Forde made the following remarks about that argument:

[30]     The effect of the commencement date in reg 3, being 29 March 2020, is to make the operation of the amendments to the Regulations seemingly retrospective. It is impossible for a tenant to comply with the requirements of the amended reg 10 before they were introduced in September 2020. It would defeat the purpose of the legislation if tenants who complied with the original regulations were defeated of the protection afforded by the Regulations for not complying with the Amending Regulations. To do so would take away existing rights. 

After considering the evidence in detail, the Tribunal made the following findings:

[61]     At no time before the 30 September 2020 Notice of Default was issued and Filomeno re-entered possession of the premises on 9 October 2020 had Crown Group made a request for rent relief which complied with reg 10. 

[62]     Crown Group did not: 

a.         a accompany any of its requests with a statement that its lease is an eligible lease and not excluded from the operation of the Act; 

b.         provide information that evidences it is a SME entity; or 

c.         provide information that evidences it qualifies for and is a participant in the Jobkeeper scheme. 

[63]     At no time on the evidence before the Tribunal did Crown Group made a request for rent relief which complied with the amended reg 10. 

[64]     Crown Group did not: 

a.         accompany any request with a statement that its lease is an eligible lease and not excluded from the operation of the Regulations; 

b.         provide a statement setting out its decline in turnover that is associated with the premises; 

c.         provide information that evidences it is a SME entity; or 

d.         provide information that evidences it is an entity entitled to Jobkeeper payments in compliance with reg 10(2)(b)(ii). 

[65]     The protection afforded by reg 9 is dependent upon compliance with reg 10. 

I make the following observations about this case:

  1. practitioners should expect the Tribunal to require strict compliance with Reg 10(2) before the tenant is entitled to protection from re-entry;  and
  2. the amendments to the CTRS Regs on 29 September 2020 do not appear to have retrospective effect.

Finally, there is an interesting question about whether a tenant who has not made a request for rent relief (or has not made a compliant request) can make a request now that has retrospective effect back to 29 March 2020.  The first version of the CTRS Regs clearly contemplated requests for rent relief with retrospective effect because the Regs were published on 1 May 2020 but provided for rent relief from 29 March 2020.  However, neither this case nor any other case of which I am aware, consider whether:

  1. the amendments to the CTRS Regs prevent a new request for rent relief to be made with retrospective effect; or 
  2. the right to make a retrospective request under the first version of the Regs is an accrued right that is protected by s 28 of the Interpretation of Legislation Act 1958 (Vic).  

We may need to wait for more litigation to determine that question!

December 28, 2020

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More information on the extended CTRS … and farewell for the year 2020 …

The amendments to the CTRS Regs that came into effect last week are small in number and most of the procedures will be familiar to most readers by now.  However, there are a couple of things about the CTRS Regs 3.0 that are worth noting.

First, a consolidated version of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) reflecting the amendments as at 22 December 2020 is now available on the Victorian Government website here: https://content.legislation.vic.gov.au/sites/default/files/2020-12/20-31sra003%20authorised.pdf

Thanks to Gary Prince for sending that link to me this afternoon.

Secondly, the OSBC’s website has been updated to reflect the CTRS Regs 3.0. 

The OSBC’s FAQs are available here: https://www.vsbc.vic.gov.au/fact-sheets-and-resources/faqs/#commercial-tenancy-relief-scheme-support-for-tenants-and-landlords-in-response-to-coronavirus-covid-19-faqs

The website contains the basic information that landlords and tenants require when dealing with a request for further rent relief.

I believe the OSBC’s website also has an updated precedent letter for requesting rent relief for the period 1 January 2021 to 28 March 2021 that tenants can use to expedite the process.

Thirdly, there is an argument that a request for rent relief made on or before 31 December 2020 allows a tenant to seek rent relief based on its figures from the last completed quarter (ie the quarter ending September 2020).  For many tenants, those figures will show a greater downturn than trade figures over the quarter ending December 2020.  However, the argument is not available if tenants make the request on or after 1 January 2021 and a request made on or after 1 January 2021 would be based on December quarter figures.

The argument has not been tested yet, and questions of statutory interpretation like this are notoriously difficult.  However, it would be prudent for a tenant to make an application now to at least leave the argument open.

Fourthly, as with the second version of the CTRS Regulations, a request for rent relief for the period ending 28 March 2021 only gives the tenant an entitlement to rent relief from the date of the request – it does not operate retrospectively.  Consequently, if the tenant makes a request on 15 January 2021, the tenant is only entitled to rent relief from 15 January to 28 March 2021, not from 1 January 2021.  Again, this is a good reason for tenants to make their request for rent relief before the end of the year (or as early as possible in 2021).

Finally, I would like to thank all of my subscribers for your support over the last hair-raising year.  Special thanks go to Justice Croft, to Alan Wein (mediator and retail guru), to Mark Schramm (from the Office of the Small business Commission) and to Jamie Bedelis, Malwina Peacock, Paul Nunan and Peter Lowenstern (all from the Law Institute of Victoria’s Leases Committee), who have been an amazing source of information and discussion as the law has emerged and evolved this year.  I’m sure we are all looking forward to a much calmer and more stable 2021.  

Happy New Year everyone!

December 22, 2020

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CRTS extension has been gazetted and published

The new regulations extending the CTRS to 28 March 2021 have now been published and gazetted.

A copy of the new regulations is available here:

The Gazette entry is available here: http://www.gazette.vic.gov.au/gazette/Gazettes2020/GG2020S687.pdf

The new regulations appear to simply amend the end date of the existing regulations from 31 December 2020 to 28 March 2020.

It might take a few days to work through any kinks that arise as a result of the amendments and I will post anything as and when it comes to hand.

For now, I think it would be prudent for tenants who are still tenants of eligible leases to make a fresh request for rent relief from their landlords for the period 1 January 2021 to 28 March 2021 before the year end, bearing in mind that:

1. the tenant’s previous request probably only applies to the period ending 31 December 2020; and

2. applications under the current version of the regulations only operate from the date the request is made.

Another issue is whether the tenant’s application for rent relief for the period 1 January 2021 to 28 March 2021 needs to be based on its financials for the quarter ending 31 December 2020 or whether the tenant can rely on the previous quarter’s financials. The amendments have only just been published, so I haven’t had a chance to work through that yet – and the kids need dinner! I will post something about this as soon as I get a chance to work through the amendments more fully.

In the meantime, given the proximity to Christmas, it might be worthwhile for tenants of eligible leases to contact their accountants tomorrow and request an expedited set of December 2020 quarter financials, just in case…

Thanks to Mark Schramm for alerting me to the Regs being passed.

December 11, 2020

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Breaking news – the CTRS in Victoria is to be extended…

The following was posted on the Minister Pulford’s Facebook page about an hour or two ago (emphasis added):

So many small businesses have done an amazing job to get through a tough year – and they’re looking to a strong recovery and a very different 2021.

We’ve been proud to stand with businesses and our support does not end with the closing of 2020.

The existing Commercial Tenancy Relief Scheme will be extended to provide support for small businesses that need it – to 28 March 2021 and in line with the Mandatory Code agreed by National Cabinet.

That means freezes on rent increases and bans on evictions for eligible small businesses that have requested rent relief will continue until that date.

Commercial landlords are required to provide rent relief in proportion to the tenant’s fall in turnover while the Victorian Small Business Commission is on hand to provide free mediation to resolve disputes.

Support for landlords will also be extended.
Commercial tenants and landlords can get more information at vsbc.vic.gov.au

The Ministers Facebook page is here: https://www.facebook.com/JaalaPulfordMP/

I will post more details as they come to hand.

December 3, 2020

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Materials on COVID-19 and residential tenancies in Victoria

My good friends David Lloyd, Bill Rimmer and Antony Berger have recently presented an online CPD through Greens List about COVID-19 and residential tenancies.

Attached to this post is a copy of their excellent paper and PowerPoint presentation that readers of this blog might find useful.

I expect that a video recording of their CPD will soon be posted on Greens List’s website (see https://www.greenslist.com.au/CPD-Online-Library).

November 5, 2020

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First VCAT decision about the CTRS…

The first decision that I have seen from VCAT about the CTRS has been published today. The facts are very similar in substance to the Sneakerboy case.

The tenant operates a Chinese buffet restaurant and its trade was adversely affected by COVID-19 as early as January 2020. It fell into rent arrears and the landlord terminated the lease for non-payment of rent on 27 March 2020.

The tenant argued that the lease was an eligible lease under the CTRS and that it was protected from re-entry by reg 9 of the Regulations. Member Kincaid rejected that argument to the basis that the lease was terminated on 27 March 2020 and the CTRS was not in effect at that time, so could not have prohibited the re-entry.

In the alternative, the tenant sought relief from forfeiture. The tenant argued that relief from forfeiture should take into account the tenant’s entitlement to rent relief under the CTRS. However, Member Kincaid rejected that argument and required the tenant to pay all rent payable under the lease as a condition of the grant of relief from forfeiture, holding that (omitting footnotes):

72.      I accept the evidence of the applicant’s director Mr Chi to the effect that the applicant is enrolled in the JobKeeper Scheme, and that Mr Chi is an “eligible business participant” engaged in the business of the applicant and entitled to receipt of the Jobkeeper payment. I also accept for present purposes that the applicant qualifies for the JobKeeper Scheme, as “carrying on business” in Australia on 1 March 2020 notwithstanding the respondent having taken possession of the premises on 27 February 2020.

73.      However, in regard to the applicant’s obligation to pay rent and other amounts in arrears as a condition of the granting of relief against forfeiture, I find that there is no serious question as to whether the applicant is entitled to take advantage of the rent relief provisions contained in the Covid-19 legislation. I accept the respondent’s submission that the lease is not an “eligible lease” within the meaning of section 13 of the Act because, for the reasons I have found, there is no serious question as to whether it was in effect on 29 March 2020. The applicant will therefore not, in my view, be entitled to any rent relief or relief from and liabilities under the Covid-19 legislation. 

Unfortunately, it appears that Member Kincaid’s attention was not drawn to the Sneakerboy decision, discussed here, in which Robb J in the NSW Supreme Court held that the grant of relief from forfeiture revives the lease and that the tenant whose lease is terminated before the Code was published is still entitled to rent relief over the period after termination but before relief from forfeiture is granted.

A copy of VCAT’s decision is available here:

October 18, 2020

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Double win for the Tigers and a win for tenants in the Court of Appeal

On the same day as the Richmond Tigers secured a berth in the Grand Final, the Court of Appeal handed the Tiges another important win that has implications for the retail tenancies market generally. 

The Court of Appeal on Friday has upheld Croft J’s decision in  Richmond Football Club Ltd v Verraty Pty Ltd [2019] VSC 597 discussed here.  

The Court of Appeal’s decision can be found at Verraty Pty Ltd v Richmond Football Club Ltd [2020] VSCA 267 (16 October 2020) and has a number of aspects.  

First, the part of the decision with immediate practical impact is that a tenant cannot have a ‘late exit’ from or ‘jump out of’ the Retail Leases Act 2003 (Vic) during the term of the lease.  This is important, as it means that the landlord and tenant of a lease that started its life as a retail premises lease can rely on the lease remaining under the Act throughout its term.

Secondly, my friend Paul Duggan has also written a useful post on the Court of Appeal’s decision here. Paul has also made the following point (emphasis added):

It is less clear whether a lease can ‘jump’ upon renewal of a lease. For example, ‘retail premises’ under the Act exclude premises whose tenants are listed on the ASX. Despite this, Verraty suggests that the retail premises lease for a ‘Mum and Dad’ business will continue to be a retail premises lease even where the tenants sell their business and assign their lease to an ASX-listed company during the life of that lease. So if that ASX-listed assignee then exercises an option to renew the lease, what is the status of the resulting further term? Croft J implies the answer depends on the terms of the lease involved. The Court of Appeal does not express a view.

Thirdly, the Court of Appeal said this (at [90], emphasis added):

In our view, acceptance of the Landlord’s construction — that the Act ceases to apply once the premises are no longer retail premises — necessarily means that cls 5.2(b) and 15.1(b)(i) (rendered void pursuant to ss 50 and 35(3), respectively) would apply and operate as originally intended and negotiated by the parties.  The Act rendered the clauses void but if (contrary to our conclusion under proposed grounds 1–3) the Act no longer applies, as contended by the Landlord, there would be no reason why the clauses, negotiated by the parties and otherwise applicable, should not continue to operate.  It is no answer to say that once the clauses are void they cannot be revived.  Rather, they would only be void in particular circumstances and if those circumstances did (hypothetically) cease to exist, there would be no reason why the clauses should continue to be void.  Although the relevant provisions of the Act operate directly and expressly on the retail premises lease, as the Tenant contends, so as to displace the express terms of the lease, it is only as a consequence of the application of the Act to the lease.  If (hypothetically) the Act no longer applied to the lease, plainly, its provisions would no longer operate on it.  

This is a paragraph that has already sparked debate within the leasing community.  For my part, I think that all we can conclude at this stage is that a clause rendered void when the RLA 2003 applied to it will not be void if the Act stops applying.  However, we may need more litigation before we know with certainty whether and when either the Act, or clauses rendered void by the Act, apply to a renewal.

October 7, 2020

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Link to Abi and my recent CPD on the Amending Regulations

Abilene Singh and I did a webinar CPD on Monday about the Amending Regulations.

For those who missed it but want to see the video, it is available here: https://www.greenslist.com.au/greens-blog/zoom-cpd-the-amending-regulations-and-extension-of-the-commercial-tenancy-relief-scheme

The overheads from the presentation are also available if readers want them here:

October 3, 2020

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There is not enough fun in legal practice!

Master Sanderson in the Supreme Court of Western Australia has taken a small step to remedy this. I think we need more judgments like this one…

http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/wa/WASC//2020/347.html

The case has nothing to do with the law of landlord and tenant, but it so well written that I had to share it.

I genuinely think it is up there with Lord Denning’s famous decision about the cricket field … https://www.casemine.com/judgement/uk/5a8ff8cb60d03e7f57ecd836

And the decision by an ACT Supreme Court Judge who was asked to decide on the balance of probabilities whether he had fallen asleep during the trial …

http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/act/ACTSC/2008/112.html

Each decision is recommended reading for all lawyers.