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!