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
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
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:
- 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.)
- Rent must not be increased during that six months period. It is unclear if the rent increase is waived or deferred.
- Reductions in land tax and other statutory charges (such as council rates) are passed on to tenants.
- 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.
- 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).
- The NSW Regulations automatically sunset six months after their commencement, which is stated to be 24 October 2020.
- 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).
- 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).
- Turnover of a business includes internet sales.
- 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).
- 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.
- 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.
- 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).
- 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.
- 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
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
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:
- Eligible tenants should get onto JobKeeper now to get the benefit of the Regulations when they are passed.
- Tenants should also be putting together evidence of the downturn in their trade/revenue and should engage with their accountants if appropriate.
- 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
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
April 21, 2020
Webinar on 24 April 2020
At 1:00pm on 24 April 2020, Abilene Singh and I will be presenting a webinar on the COVID-19 legislation that is expected to be debated before Victorian Parliament on Thursday, 23 April, and on related topics.
For those interested in attending the webinar, the details are:
Coronavirus and Victorian retail and commercial tenancies
This seminar will explore:
Anticipated emergency legislation to address the Coronavirus pandemic to be debated before a special sitting of the Victorian Parliament on 23 April 2020.
How the anticipated new law will affect negotiating terms in retail leases, waivers and deferrals, bringing leases to an end, mediation at the VSBC and issuing proceedings in VCAT.
Interaction between the new law and other common law principles:
* Implied terms;
* Frustration; and
* Force majeure.
Attend and earn 1 CPD unit in Substantive Law.
Register for attendance here: https://www.greenslist.com.au/attendee-register/Webinar-Coronavirus-and-Victorian-retail-and-commercial-tenancies
April 17, 2020
WA bills for commercial tenancies tabled
Bills have been tabled before the Western Australian Parliament to enact the WA State Government’s response to the COVID-19 pandemic with respect to commercial tenancies.
The Bills are available here:
Highlights of the WA Bills are:
- It applies to small commercial tenants, which is defined by reference to other WA legislation. It is unclear at this stage whether this extends as far as the Code (which applies to tenants with a turnover of up to $50M).
- Small commercial tenants suffering severe financial hardship on account of the COVID-19 pandemic (ie that are unable to meet their obligations under their lease) have the ability to terminated the lease on 21 days notice. The landlord has the ability to challenge that notice before the WA equivalent of VCAT. Importantly, there has been no indication from the Victorian Premier that a similar termination right will be enacted in Victoria, and there is no reason for practitioners to expect this to appear in the Victoria’s equivalent legislation.
- The WA Bill operates retrospectively from 30 March 2020. Any actions taken between that date and the commencement of the legislation (such as calling on securities) are not invalidated, but incomplete actions are stayed for the time being.
- The Bills apply to leases and licences. Many franchisees in Victoria operate under franchisee outlet licences (as opposed to leases) and their status under tenancy laws is often the subject of debate.
- Incorporated associations are also covered, which would extend to many not-for-profits such as sporting clubs.
- It looks like the Bill will incorporate the Code thorough Regulations and then creates a regime for mediation and, if necessary, litigation to enforce its terms. The Tribunal is given the power to make various orders, including orders for waiver and deferral of rent. We don’t yet know whether the Victorian Parliament will adopt the Code unchanged or adopt more detailed legislation that reflects the principals embodied in the Code.
Thanks to Alan Wein for his assistance on this post.
April 16, 2020
Victorian Premier’s press releases
There has been a lot of press over the last 24 hours about the Victorian Government’s new measures for landlords and tenants.
There were two relevant press releases yesterday:
- one announcing the emergency sitting of Victorian Parliament, available here: https://www.premier.vic.gov.au/emergency-sitting-of-the-victorian-parliament-next-week/
- the second announcing the State government stimulus to support landlords and tenants, available here: https://www.premier.vic.gov.au/supporting-tenants-and-landlords-through-coronavirus/
The press release announcing the emergency sitting of Parliament includes the following:
The Victorian Government is drafting legislation to address issues such as the tenancy reforms agreed to by the National Cabinet ...
We do not yet know what that bill will look like, but we get some indications from the second press release.
Highlights from the second press release are:
These [new laws] include introducing a temporary ban on evictions, pausing rental increases for six months, and providing land tax relief for landlords and rent relief for tenants experiencing financial hardship as part of a plan to help Victorian families and businesses get to the other side of this unprecedented crisis.
Premier Daniel Andrews today announced a $500 million package aimed at giving certainty to residential and commercial tenants and landlords, while they struggle with the unprecedented economic disruption caused by the coronavirus pandemic – with emergency legislation to be put into the Parliament next Thursday.
…
Tenants and landlords who struggle to strike a deal over rent reductions will be given access to a fast-tracked dispute resolution service, with Consumer Affairs Victoria or the Victorian Small Business Commission mediating to ensure fair agreements are reached.
… the Government will provide $420 million in land tax relief. If a landlord provides tenants impacted by coronavirus with rent relief, they will be eligible for a 25 per cent discount on their land tax, while any remaining land tax can be deferred until March 2021.
A new Coronavirus Relief Deputy Commissioner will be established at the State Revenue Office to manage these land tax relief claims.
… evictions will be banned for residential tenancies for six months, except in some circumstances. Evictions will also be banned for six months for the non-payment of rent for commercial tenancies involving small and medium-sized businesses. Rental increases will also be banned for commercial and residential properties for the same period.
… the Government will also urgently legislate so that eligible small and medium sized businesses can be granted rental waivers or deferrals.
Businesses are eligible for these measures if they have an annual turnover under $50 million per year and have experienced more than a 30 per cent reduction in turnover due to coronavirus.
The Government will also create an $80 million rental assistance fund for renters facing hardship due of coronavirus. To be eligible, renters will need to have registered their revised agreement with Consumer Affairs Victoria or gone through mediation, have less than $5,000 in savings and still be paying at least 30 per cent of their income in rent.
As agreed by National Cabinet, these new measures will come into effect from 29 March for a period of six months.
Readers should note the start date of 29 March 2020 for the relief period, meaning the legislation will have a retrospective effect. It is unclear how this will affect deals that have already been struck between landlords and tenants.
April 15, 2020
Another approach for tenants – could there be an implied term?
A UK colleague has suggested another line of argument for the COVID-19 issue that has not received a lot of airtime in Australia – at least, not that I have seen, stuck here in my living room!
The author argues that there may be a judge or two willing, when faced with the right lease in the right circumstances, to imply a term into a lease that addresses a tenant’s liability to pay rent during COVID-19 closures.
The argument is based on UK caselaw referring to the ‘officious bystander’. The argument is summarised eloquently by Nathaniel Duckworth of Falcon Chambers in London in his article here: https://www.falcon-chambers.com/publications/articles/does-a-tenant-really-have-to-go-on-paying-rent-during-lockdown-perhaps-we-s
To my eyes and ears, the argument seems to be similar to the implication of terms on the basis that the term is ‘so obvious it goes without saying’, which finds its way into Australian contract law.
As the author rightly suggests, the argument is a difficult one, particularly as there is no obvious consensus about how the parties would have dealt with rent in a COVID-19 shutdown had its possibility been raised by the officious bystander at the time they entered the bargain.
However, perhaps the author’s most valuable insight, which is equally relevant to Australian readers as it is to those in the UK, is this:
We should also keep in mind that a landlord with a property portfolio of any size will not want to end up at trial on this issue. Even if the risk of losing is perceived to be small, the knock-on effect of an adverse result, incurred in public proceedings, will in many cases be unthinkable for a landlord of any substance. Even with a merely arguable case, a brave tenant may yet find there are deals out there to be had.
Given that the new Code is promising relief to the small to medium sized tenants, it will be interesting to see whether any of our larger tenants have the lease, the circumstances, the resources and the will to press this line of argument!
Sam Hopper Barrister 
May 1, 2020
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