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

April 21, 2020

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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

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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:

https://www.parliament.wa.gov.au/Parliament/Bills.nsf/ED7097E743C7BC2D4825854C00102B97/$File/186-1.pdf

https://www.parliament.wa.gov.au/Parliament/Bills.nsf/7CDCFDA8EE2BA09C4825854C00139362/$File/188-1.pdf 

Highlights of the WA Bills are:

  1. 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).
  2. 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.
  3. 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.
  4. 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.
  5. Incorporated associations are also covered, which would extend to many not-for-profits such as sporting clubs.
  6. 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

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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:

  1. one announcing the emergency sitting of Victorian Parliament, available here: https://www.premier.vic.gov.au/emergency-sitting-of-the-victorian-parliament-next-week/
  2. 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

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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!

April 15, 2020

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State legislation enacting the Code expected 23 April 2020

The Victorian Premier announced today that Parliament is sitting on Thursday, 23 April 2020 to debate ‘an ominbus of bills’.

Among those bills is expected to be a bill giving effect to the National Cabinet Mandatory Code of Conduct for landlords and tenants that was discussed in an earlier post.

As usual, I will keep my readers posted of developments as they occur.

On a similar note, the ACT Parliament has passed amendments to its Leases (Commercial and Retail) Act 2001 (ACT).  These amendments are effective as at 8 April 2020 and permit the ACT’s Attorney-General to make certain declarations.  The provision states that:

Part 17 COVID-19 emergency response

177  Declaration—COVID-19 emergency response

(1) The Minister may make a declaration in relation to the following matters for the purpose of responding to the public health emergency   caused by the COVID-19 pandemic:

(a)    prohibiting the termination of a lease to which this Act applies by a lessor in stated circumstances;

(b)    prohibiting the recovery of possession of premises under the lease by the lessor in stated circumstances;

(c)    changing any period under the lease or this Act in which someone must or may do something;

(d)    changing, limiting or preventing the exercise or enforcement of any other right of the lessor under the lease or this Act in stated circumstances;

(e)    exempting a tenant or lessor, or class of tenant or lessor, from the operation of a provision of this Act, a lease to which this Act applies or any other agreement relating to the lease of the premises.

Sam Hopper and Abilene Singh

April 9, 2020

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VCAT adjourning face-to-face trials until 15 May 2020

I have just heard that VCAT is adjourning all face-to-face hearings up to and including 15 May 2020.

The previous position was that face-to-fact hearings up to 17 April 2020 were adjourned.

The notice I received applied to the Building and Property List.  If you have matters in other lists of the Tribunal, you should contact the registry to see if your matter is proceeding.

VCAT is still hearing urgent applications (including applications for interlocutory injunctions to restrain wrongful re-entry of a lease) by telephone.

I will post again when I hear about technological solutions that the Tribunal has implemented for electronic hearings.

April 7, 2020

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PM’s press release on the commercial tenancies

The Prime Minister’s press release from today is available here: https://www.pm.gov.au/media/update-coronavirus-measures-070420

The paragraphs relevant to commercial tenants are as follows:

The National Cabinet agreed that states and territories would implement the attached mandatory Code of Conduct (the Code), including via legislation or regulation as appropriate, to implement the principles agreed on Friday 3 April. The Code builds on the draft codes submitted by landlord and tenant representative bodies in the commercial property sector.

The purpose of the Code is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, in circumstances where the tenant is a small-medium sized business (annual turnover of up to $50 million) and is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme.

National Cabinet agreed that there would be a proportionality to rent reductions based on the tenant’s decline in turnover to ensure that the burden is shared between landlords and tenants. The Code provides a proportionate and measured burden share between the two parties while still allowing tenants and landlords to agree to tailored, bespoke and appropriate temporary arrangements that take account of their particular circumstances.

National Cabinet again noted that it expects Australian and foreign banks along with other financial institutions operating in Australia, to support landlords and tenants with appropriate flexibility as they work to implement the mandatory Code.

The Commonwealth Government is also acting as a model landlord by waiving rents for all its small and medium enterprises and not-for-profit tenants within its owned and leased property across Australia.

The Rent Relief Policy will include a mutual obligation requirement on the small and medium sized enterprises and not-for-profit tenants to continue to engage their employees through the JobKeeper initiative where eligible, and if applicable, provide rent relief to their subtenants.

A copy of the Code is also available here: https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

I’ll have more to say about the Code in the next few days, but for now it is worth noting that:

  1. the Code sets a series of guidelines for negotiated solutions to financial distress caused by the COVID-19 crisis.  These are similar to those outlined in the Prime Minister’s speech earlier today (summarised in an earlier post on this blog), but give much more detail;
  2. the Code will be given effect through relevant state and territory legislation or regulation as appropriate;
  3. where landlords and tenants cannot reach agreement on leasing arrangements (as a direct result of the COVID-19 pandemic), the matter should be referred and subjected (by either party) to applicable state or territory retail/commercial leasing dispute resolution processes for binding mediation, including Small Business Commissioners/Champions/Ombudsmen where applicable.  This suggests that in Victoria mediation will be conducted by the Office of the Small Business Commission;  and
  4. emergency legislation has been passed in other states (NSW and Tasmania that I am aware of) allowing Regulations to be created to give effect to the moratorium period (ie preventing landlords from terminating leases), I am not aware of any legislation having been passed in Victoria or Bills before Victorian Parliament at this stage to give effect to the Code.