A Bill is now available on the Parliamentary website that will allow the extension of the CTRS.

The purpose of the Bill is stated as:

(a) to amend the COVID-19 Omnibus (Emergency Measures) Act 2020— 

(i) to extend the operation of Part 2.2 of that Act under which regulations may be made to modify the law relating to retail leases and non-retail commercial leases and licences until 26 April 2021; and 

(ii) to make further provision in relation to the subject matter of regulations which may be made under Part 2.2 of that Act, 5 including the making of orders directing landlords under eligible leases to give or agree to give specified rent relief to tenants under eligible leases and conferring jurisdiction on VCAT to 10 enforce such orders; and 

This Bill was expected in light of the Premier’s announcement, discussed here.

It is necessary to extend the Omnibus Act, because it automatically expires on 29 September 2020.

The contents of the Bill is largely what we expected following the Premier’s announcement, but it has a few surprises.

The operation of commercial tenancy parts of the Omnibus Act is to be extended to 26 April 2021. The reason for that date is unclear, given that the Premier’s announcement suggested an extension of the CTRS only to 31 December 2020.

The Bill also changes the definition of ‘eligible lease‘. Currently the Act defines an eligible lease in s 13 (basically the tenant has to be an SME and an employer that is eligible for and a participant in JobKeeper). The Bill allows the definition of ‘eligible lease’ to be prescribed by the Regulations. This could be used to address some or all of the following issues:

• the requirement that the tenant be an employer, which has been causing problems for sole traders and tenants who operate a service company; and
• the requirement that the tenant itself be a participant in JobKeeper, which has also been creating problems for tenants that use a service company.

I have also read in the news that there has been lobbying to reduce the $50M threshold for an eligible lease.

The Bill also allows the new/amended Regulations to allow for the making of orders for:

(na) the making of orders directing landlords under eligible leases to give or agree to give specified rent relief to tenants under eligible leases (binding orders) and the content of such orders;

(nb) the process for applications by tenants under eligible leases for binding orders (rent relief applications) including the content of rent relief applications and documents that may accompany rent relief applications; 

These are, presumably, the orders for rent relief that can be made by the VSBC that were referred to in the Premier’s announcement.

The Bill also allows for the review and enforcement of binding orders by VCAT.

The Bill only provides for tenants applying for binding orders. There is no equivalent provision for a landlord to seek a binding order. However, it should be noted that reg 9 of the current Regulations only protect a tenant from re-entry if it complies with regs 10(1) to (5), which requires the tenant to make an application for rent relief and to negotiate in good faith.

I have not seen the new regulations yet and will publish a post as soon as I can.

A copy of the Bill is available here (with the relevant parts highlighted):

Justice Robb in the NSW Supreme Court has handed down two recent decisions that discuss the effect of the Code and its implementation in NSW.  

The decisions are:

• Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996, (31 July 2020);  and
• Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd (No 2) [2020] NSWSC 1141 (26 August 2020).

Sneakerboy is a tenant that fell into arrears of rent and its landlord called on its bank guarantee and terminated its lease at the beginning of the COVID-19 pandemic but before the Code was brought into law in NSW.  

After a delay of around four months, the tenant sought relief from forfeiture to revive the lease.  Because the lease was terminated before the Code became law in NSW, termination was not prohibited by the Code.  

A tenant seeking relief from forfeiture is required to cure all relevant breaches and comply with the terms of the lease.  However, the application of the Code to the lease once revived would alter the tenant’s obligations under the lease.  Consequently, to decide whether and how the tenant would comply with the lease, the Court was required to examine the Code and the NSW Regulations giving effect to it in some detail.

I have set out below what I think are the important take-home observations about the Code and the NSW Regulations for Victorian leasing lawyers.  It is important to remember, however, that the decision was in NSW and considered the Code and the NSW Regulations, so the decision is not directly applicable to our legislation.  That being said, the findings discussed below are still, in my view, relevant.

Remedies

One of the issues under the Victorian Regulations is what orders a court or VCAT can make to determine a dispute between a landlord and tenant who cannot agree on the amount of rent relief.  In particular, it is by no means clear that a court or VCAT can substitute its own decision as to the appropriate rent relief that should be agreed between the parties.  

A similar problem was identified by Robb J at paragraphs [79] to [93] of the second decision.  The discussion is summarised in the following paragraphs (emphasis added):

89.       The following may be said. First, it … seems at least to be clear that, if the renegotiation [of the lease terms] required by clause 7 fails, a party has a right to refer the dispute to mediation by the Registrar under the Retail Leases Act, and proceedings cannot be commenced in a court until the Registrar has certified that the mediation has failed, or the court is otherwise satisfied that the mediation it is unlikely to resolve the dispute. It is at least doubtful that the Tribunal has the necessary powers to resolve a dispute arising out of a failed renegotiation, even though it is possible that the drafters of clause 8 of the COVID-19 Regulation intended that disputes could be resolved in the Tribunal.

90.       It is not necessary for the Court to decide now the circumstances in which this or any other Court might have jurisdiction to resolve any dispute arising out of a failed renegotiation under clause 7 of the COVID-19 Regulation. This Court is not given any specific power to do so, and it does not fit comfortably within this Court’s historical jurisdiction that it be required remake contracts on the basis of commercial considerations, although it must be acknowledged that it may do so to some extent under the Contracts Review Act 1980 (NSW). How this problem should be resolved must be left for the future when a case comes before the Court that requires its resolution.

Ultimately, it was not necessary for the Court to decide that issue in either judgment. 

The Victorian Omnibus Regulations suffer from the same problem.  However, the proposed amendments to the Omnibus Act and Regulations to extend the CTRS in Victoria might address this (see https://samhopperbarrister.com/2020/08/20/what-did-we-learn-from-todays-announcements/).

Knowing the remedies that are available is important for two reasons.  First, it is important for the courts or Tribunal to have the power to finally resolve disputes, especially when the issues are complex or one party is being unreasonable.  Secondly, parties need to understand the alternatives to an agreement when considering offers at mediation – ie you need to know your alternatives to a negotiated agreement.

Tenant’s trade

One of the areas of debate in this area is whether reduction in a tenant’s trade is determined on a store-by-store basis or on the basis of the tenant’s overall turnover.  

The NSW position is discussed in detail in paragraphs 112 to 118, and also 119 to 122, of the second decision and is summarised in the following paragraphs (emphasis added):

112.     The issue of whether the phrase “tenant’s trade” in leasing principle 3 refers to the whole of the tenant’s turnover, or only the turnover at the premises the subject of the particular lease, does not in my view always require the same answer. The overarching principles stated in the Code include: “It is intended that landlords will agree tailored, bespoke and appropriate temporary arrangements for each SME tenant, taking into account their particular circumstances on a case-by-case basis”. The overarching principles include that arrangements “will take into account the impact of the COVID-19 pandemic on the tenant with specific regard to its revenue, expenses and profitability”. They also include: “All premises are different, as are their commercial arrangements; it is therefore not possible to form a collective industry position”.

113.     However, in my view it will generally be the case that the phrase “tenant’s trade” in leasing principle 3 will require a consideration of the whole of the particular tenant’s turnover, as well as costs and profit, from all locations at which the tenant conducts retail businesses.

It is important to note from the outset that the Court was considering the meaning of the Code and the NSW Regulations and the Victorian Omnibus Regulations do not expressly adopt the wording of the Code, so may be interpreted differently.  Regulation 10 in the Victorian Regulations contains this statement:

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

…

(d)        take into account—

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

I have heard anecdotally that a lot of negotiations have assessed the downturn in tenants’ trade at a store level, so this part of the decision could prove to be significant.  However, given the statement above from the Victorian Regulations, the impact of this statement in Victoria may be limited.

Month-by-month assessment of rent relief

I have also heard anecdotally and observed the practice emerging of rent relief being assessed and re-assessed on a month-by-month or two-monthly basis.  

However, the Court considered and rejected that approach, stating that:

143.     The COVID-19 regime does not contemplate that the rent payable under retail leases will be proportionately reduced on the basis of separate monthly calculations comparing turnover with the equivalent month in the preceding year. It contemplates a single renegotiation for the COVID-19 pandemic period and a subsequent reasonable recovery period. However, the COVID-19 regime does not prevent the parties to a commercial lease from agreeing some other formula, or from initiating more than one renegotiation.

This is consistent with the Victorian Regulations, which require the landlord to make an offer of rent relief that covers the whole of the relevant period (ie the six months from 29 March 2020).

Comparison data

Another issue in determining rent relief is how to work out what trading figures to compare with the pandemic period, as isolating particular months can lead to distorted results.  The Court had this to say on the issue:

122.     The process of renegotiation contemplated by the Code may not be problematic in cases where the turnover of the tenant’s business is regular and consistent, so that a substantial decline in turnover following the onset of the COVID-19 pandemic may reasonably be accepted as being representative of the tenant’s likely turnover for the period of the pandemic and a reasonable recovery period thereafter. The problem may be acute in the case of seasonal businesses, which I expect to be true for most clothing and footwear retailers. The exercise may require a comparison between the turnover for a month or so in 2020 with a longer trading period before the onset of the COVID-19 pandemic. If the seasonality of the business is sufficiently regular, it may be appropriate to compare the turnover for a month or so before the commencement of the renegotiation with the equivalent period in the previous year. These difficulties demonstrate why the solution to the consequences of the COVID-19 pandemic has required good faith commercial negotiations by the parties to the lease.

Concluding remarks

Ultimately, the Court directed the parties in the Sneakerboy cases to negotiate rent relief and any consequential amendments to the lease and granted leave to have the matter relisted if agreement cannot be reached.  For the sake of the parties to the litigation, we can only hope that they reach a suitable compromise. However, if they do not then we will no doubt hear more from the Court about the Code and the NSW Regulations.

Also, the Court’s judgments are long.  If you want to read the decisions but are pressed for time, the second decision is the one to read. 

No doubt others will see different significant issues in the reasons.  If I hear some that I think readers will find interesting I will try to post them as soon as I can.  

https://www.premier.vic.gov.au/pause-evictions-extended-and-extra-renter-protections

The above link is to the Premier’s press release on what appears to be a partial extension of the CTRS.

The press release contains more information than was in the article that I posted earlier today.

I will circulate a summary of the key points shortly.

Further to my post on Monday about the details of the stage 4 restrictions, contact telephone number and website for Industry Coordination Centre within Department of Jobs, Precincts and Regions are 13 22 15 or visit Business Victoria.

Further details can be found at  https://djpr.vic.gov.au/about-us/contact-us.

The main issue that comes out of today’s announcements is the question of which industries must close, which can open and which can continue with restricted operations.

For those trying to work this out, you might want to have a look at this link to the Premier’s website that contains:

1. the Premier’s press statement on business restrictions;  and 
2. a link to a table detailing the restrictions (a copy of which is available by clicking on the button below).

The table contains a detailed list of the restrictions that apply to each industry and then to each sector within the industry.  However, I suggest that you read the Premier’s statement first, then review the table.

Practitioners should also be aware that the Government has set up an Industry Coordination Centre within the Department of Jobs, Precincts and Regions to consider cases that do not fit neatly into the categories in the Premier’s three list and the attached table.  I couldn’t find reference to the Centre on the website for the Department of Jobs, Precincts and Regions, but I expect that it will go up in the next day or so.  Please send me a link or post it in the comments section below if you find it.

Some extracts of the Premier’s statement relevant to leasing lawyers are as follows (emphasis added):

Today I can announce three lists that will apply during Stage 4 restrictions.

First: supermarkets, grocery stores, bottle shops, pharmacies, petrol stations, banks, newsagencies, post offices —plus everyone involved in our frontline response — will continue to operate.

Second: Industries where onsite operations will have to cease for the next six weeks including retail, some manufacturing and administration. These businesses will all need to close by 11:59pm Wednesday 5 August, unless they have specific circumstances that mean they need longer to shutdown safely.

Retail stores will be permitted to operate contactless ‘click and collect’ and delivery services with strict safety protocols in place, and hardware stores can remain open onsite, but for tradespeople only.

The third and final list is made up of industries that are permitted to operate — but under significantly different conditions.

…

All open businesses and services will have until 11:59pm Friday 7 August to enact a COVIDSafe plan focused on safety, prevention and response in the event that coronavirus is linked to the workplace — because beating this virus requires a rapid response wherever it rears its head.

In industries that can’t close, but where we’ve seen a number of cases or emerging new risks, we’ll be making some big changes to make these workplaces safer — for workers and for their families.

That includes mandated reductions to the number of workers onsite. In the meat industry — and based on the minimum required to operate safely onsite — the workforce will be scaled back to two-thirds. Unlike other changes, and recognising the risk these sites have posed here and around the world, this will apply to abattoirs in Melbourne and across the state.

Warehousing and distribution centres in Melbourne will be limited to no more than two-thirds the normal workforce allowed onsite at any one time.

Our construction sector, the lifeblood of our economy, will also move to pilot light levels. This will allow the industry to keep ticking — while also making sure we limit the number of people onsite.

For major construction sites, that means the absolute minimum required for safety — but no more than 25 per cent of the normal workforce onsite. Small-scale construction will be limited to a maximum of five people onsite.

These workplaces that are continuing to operate will also have additional requirements including extra PPE, staggering shifts, staggering breaks, health declarations and more support for sick workers to ensure they stay home.

…And for those businesses and industries that fall into grey areas when it comes to their operation, the dedicated Industry Coordination Centre within the Department of Jobs, Precincts and Regions will consider their cas