September 16, 2020

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Retail Leases Amendment Bill 2019 and the CTRS extension bill have passed through Parliament and are awaiting Royal Assent

For those watching this closely, both the Retail Leases Amendment Bill 2019 (Vic) and the COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Bill 2020 which extends and modifies the CTRS have passed through Parliament and are awaiting Royal assent before they become law. See: https://www.parliament.vic.gov.au/legislation/343-legislation-and-bills/articles/1824-bills-this-week

I expect that we will see the new Regulations extending the CTRS once the Bill receives Royal assents.

As usual, I will post updates as they come to hand.

Thanks to both Paul Nunan and Peter Lowenstern for the updates on these bills.

September 10, 2020

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Extracts from the second reading speech for the COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Bill 2020

The ever-diligent Abilene Singh has sent me a copy of the second reading speech for the Bill that allows for the extension of the CTRS in Victoria. The real action will be in the Regulations when they are published, but the second reading speech gives a few more clues about what the Regs are likely to say. I have extracted the key parts of the speech below, with the most interesting bits in bold:

… The extension of [the provisions of the Omnibus Act facilitating the CTRS in] Part 2.2 of the Act will permit the extension and amending of the current regulations to 31 December 2020 and the capacity to extend up to 26 April 2021 if required

It is intended that the provisions will continue to apply in respect of all eligible commercial leases where the tenant qualifies for (and is a participant in) the Commonwealth’s JobKeeper program and has an annual turnover of up to $50 million. As originally intended, this includes but is not limited to eligible sole traders, not for profit businesses and franchisees. This Bill will amend the Omnibus Act to enable the eligibility requirements for rent relief to be determined under the regulations, which will allow for the removal of the requirement that tenants must be employing businesses. This will confirm the Government’s intent that sole traders are eligible to participate if they are participating in JobKeeper and will increase flexibility for the Government to adjust as the JobKeeper program evolves. 

It is our expectation that most commercial tenants and landlords will continue to work together to reach agreements that will best assist the ongoing survival of businesses. Where the landlord or tenant cannot reach agreement, either party may refer the matter for free mediation by the Victorian Small Business Commission. 

It is disappointing that the Government continues to receive reports that good faith negotiations are not happening in all instances, and it is important to note that both tenants and landlords have obligations under the Omnibus Act and the CTRS regulations. Tenants that are eligible have an obligation to request rent relief in the form prescribed in the CTRS regulations. Rent relief is not automatic. The Government has endeavoured to make the application process as streamlined as possible, noting that information requests to tenants should be as minimal as possible to support their applications, in most part mirroring information they will have already provided for their JobKeeper application

It is important to note that compliance with the regulations is mandatory, and landlords have obligations to respond to requests for rent relief. To address this issue, this Bill also enables the making of regulations to enable the VSBC to make an order where this is considered fair and reasonable in all the circumstances. It is intended that the VSBC would use these additional powers to resolve disputes between the parties, in particular, where a landlord is consistently failing to respond to VSBC pre-mediation requests to negotiate in good faith.

A copy of the full second reading speech with my highlighting is available here:

September 3, 2020

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COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Bill 2020 now available

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):

September 1, 2020

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Article on the Retail Leases Amendment Bill 2019 and update on RFC v Verraty appeal

The Retail Leases Amendment Bill 2019 remains before the Upper House and on the list for debate. To the best of my knowledge, the Bill has not yet been passed.

For those who are following this area of law, the Law Institute Journal has published an excellent article by Paul Snow and Nicholas D’Arcy that summarises the changes expected by the Bill (sorry for omitting your name earlier Nick!). The article is available here. Go to pp 60-61 of the .pdf to find the article. Thanks to Alan Wein for passing this to me.

Also, some of you might remember the decision in Richmond Football Club Ltd v Verraty Pty Ltd [2019] VSC 597, discussed in an earlier post here, in which Croft J held that a lease could not ‘jump out’ of the RLA 2003 during its term. An appeal from that decision was argued today in the Court of Appeal and a decision is expected in the next month or two. I will post a summary of the decision when it is handed down.

August 31, 2020

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Sneakerboy cases from NSW – the first judgments about the Code

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 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.  

August 20, 2020

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What did we learn from today’s announcements?

The Premier’s press release today contained some important information about the CTRS for commercial landlords and tenants.  

Here is my summary of and comments on the latest development:

  • The prohibition on lease terminations and rent increases will be extended from the current sunset date of 29 September 2020 to 31 December 2020.  It is unclear at this stage whether the prohibition on terminations extends to both termination for non-payment of rent and termination for not trading, but it is likely to cover both.
  • The prohibition will not apply in ‘specific circumstances’. That seems to be new and at this stage it is not clear what those circumstances will be.
  • Importantly, the press release said nothing about whether the landlords’ requirement to provide rent relief will also be extended.  We will need to wait to hear more on this issue.
  • The Victorian Regulations giving effect to the Code have been criticised by tenants for ‘de-coupling’ rent relief from the tenant’s reduction in turnover and emphasising both the tenant’s ability to pay rent and the landlord’s ability to absorb rent relief.  The press release suggests an increased emphasis on, or ‘re-coupling’ of, rent relief to the reduction in tenant’s turnover.  It is not clear at this stage what that ‘re-coupling’ will look like.
  • The Victorian Small Business Commission ‘will now also have greater capacity to make an order on rent relief if a landlord refuses to respond to rent relief requests.’  One of the areas of uncertainty in the Victorian Regulations is what power the Courts or VCAT have resolve requests for rent relief that do not settle at mediation.  This announcement suggests that the VSBC will have some kind of power to make an order for rent relief.  This is new, as the VSBC does not have such a power under the current version of the Regulations.  Again, it is not clear how this power will operate or in what circumstances.
  • There will be increased land tax relief and funding for commercial landlords – up to $3,000 per tenancy – and eligible small businesses that own commercial property will be able to benefit from land tax relief.

The announcement coincides with at least one major landlord moving to terminate leases for some non-paying, non-SME tenants: see https://www.theage.com.au/business/companies/westfield-locks-retailers-out-of-stores-as-rent-battle-escalates-20200820-p55ns2.html

As usual, I will post any further information about amendments to the CTRS as soon as it comes to hand.

August 20, 2020

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Premier’s press release on the (partial) extension of the CTRS

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.

August 20, 2020

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Announcement about extension of the CTRS in Victoria

The Financial Review has just published the following:

Ban on rent increases and evictions extended

Patrick Durkin

The Victorian government is extending the ban on evictions and rental increases until the end of the year.

“Under the extensions, evictions will continue to be banned for residential and commercial tenants until December 31, unless in rare and specific circumstances,” Victorian Treasurer Tim Pallasa said.

“Rental hikes continue to be banned until the end of the year also,” he said.

Mr Pallas said in the last four months, there had been close to 26,000 agreements for reduced rent registered with Consumer Affairs Victoria.

The Victorian Small Business Commission has also helped around 8,000 rent-related inquiries.

“Most of those have been help that has been brokered to find common ground between tenants and landlords,” Mr Pallas said.

The state Treasurer said the government is also introducing additional measures with commercial landlords required to provide rent relief in proportion with falls in turnover.

“So, up until now, that proportionality principle has been aspired to, but we will now make it a very clear and expressed intention that, if you’re identifying a downturn in your capacity, your turnover, then you should have an expectation that that is similarly reflected in terms of the rent relief that you get,” Mr Pallas said.

“Residential and commercial landlords will be able to take more advantage of more support, including, for example, further land tax reductions and more grant funding. The government’s also going to extend the land tax relief available and make it easier to access,” he said.

Landlords that provide outright rent waivers of at least 50 per cent of rent payable for at least three months will be eligible for an additional 25 per cent land tax relief.

A $60 million fund will also be established for eligible small commercial landlords, and that will provide up to $3,000 per tenancy.

Additionally, the government will invest some $600,000 in a package to support advocacy groups such as VCOSS, Tenants Victoria, and others, to support vulnerable tenants to understand their rights.

August 5, 2020

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Details of Stage 4 Lockdown Part 2 – contact details for the Industry Coordination Centre

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.

August 4, 2020

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Stage 4 lockdown social distancing gazette entry

Readers might also be interested in the Victorian Government Gazette entry for stage 4 social distancing rules.

This is the Gazette entry for the social distancing measures that were announced by the Premier on Sunday (ie stage 4 social distancing, 5km rule, etc), not the Gazette entry that records yesterday’s announcement of business closures.

I expect that the Gazette entry for business closures will be published either today or tomorrow and I will post a copy as soon as I see it.

Thanks to my friend and colleague Peter Lowenstern for forwarding this to me.