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A Guide for Commercial Tenants

There is much confusion out there about the rights of a commercial tenant for rent and outgoings relief. If you are a commercial tenant, it is essential that you understand your rights and entitlements. Our commercial leasing lawyers have prepared this guide to assist tenants in understanding the process.

The Mandatory Code of Conduct and the Regulations

The Mandatory Code was a national framework which became, in Victoria, embodied in the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations). The code is not law and the “regulations” are in effect and outlines tenants’ and landlords’ rights and responsibilities during COVID-19.

This change from the code to the regulations has caused much confusion with many industry players still thinking that the code is relevant.

Other states have similar (but not identical) legislation. The Victorian Premier has extended these Regulations until the end of 2020 due to the Stage 4 lockdown.

How Does a Tenant Qualify for Rent Relief?

There are certain fixed criteria which go into determining the qualification of and the extent of rent relief for tenants. In particular, the Regulations deal with how much should be waived and how much should be deferred.

The criteria, broadly, in determining the amount of rent relief are as follows:

  • the reduction in a tenant’s turnover associated with the premises during the relevant period; and
  • any waiver of rent agreed to; and
  • whether a failure to offer sufficient rent relief would compromise a tenant’s capacity to fulfil the tenant’s ongoing obligations under the eligible lease, including the payment of rent; and
  • a landlord’s financial ability to offer rent relief, including any relief provided to a landlord by any of its lenders as a response to the COVID-19 pandemic; and
  • any reduction to any outgoings charged, imposed or levied in relation to the premises.

It is important to distinguish between a “waiver” of rent and a “deferral” of rent. A waiver does not need to be repaid. A deferral is merely a postponement of that portion of the rent. There are timeframes that need to be adhered to which are generally much longer than most landlords will concede, unless pushed.

The Landlord’s Offer

Under the regulations it is incumbent upon the landlord to put an offer to a tenant within 14 days of a request by the tenant for rent relief. This is subject to certain qualifying criteria, including that the lease is an “eligible lease”. In order for a tenant to fall within the parameters of the Regulations, it will need to have qualified for, and be participating in the JobKeeper scheme. From the time a tenant qualifies for JobKeeper, it gets the protection of the Regulations.

What Happens if You Can’t Reach a Resolution with the Landlord?

There is good news if you are a tenant. You can elect to go to mediation at the Victorian Small Business Commissioner’s office. It is usually best to have legal representation as the landlord will typically be represented in some way by someone experienced in lease negotiations, such as a lawyer. At mediation there may be several parties from the otherside attending and you will need to ensure that you are advised beforehand of what protections are available to you or have legal representation.

This is an opportunity to get the matter resolved (hopefully) in a way which is fair and reasonable to you as a tenant. The current wait time is quite long, and that may well be to your advantage. Notwithstanding, if threats are coming from a landlord you may need to take urgent court action to restrain the landlord, if the landlord is threatening to, or has attempted to, terminate your lease. if you are being threatened to be locked out of your premises or otherwise a commercial lease lawyer will be able to quickly assess your circumstances and advise you on the best course of action.

If mediation doesn’t resolve the matter, the parties have the opportunity to go to VCAT (or in some cases a Court) to ask for a determination of what is fair, reasonable and just in the circumstances. As of today, we are not aware of any cases that have been heard to completion. There will be such cases, but it is just too early to give any indication as to how VCAT or a court will view individual cases. In our opinion, they are likely to be relatively lenient towards tenants who, in good faith, are just trying to make it through this very difficult time.

How do I negotiate with my Landlord?

This brings us to the very difficult issue of negotiating with a landlord. What we have observed so far is that many landlords are just extremely difficult to deal with. On the one hand, it is understandable, because they are having their cash flow severely, if not totally limited at this time. We have seen proposals whereby there is, say, one or two months “rent-free” offered, with an expectation that for the remainder of the pandemic period there will be no further discount on rent, and that all outgoings should be paid, even in a context where the business in question had to close pursuant to a government directive.

There are very particular and special obligations under the Regulations by which a landlord must abide. It does require careful negotiation and consideration of those individual circumstances. It is advisable, in most cases, not to accept the first offer that comes along from the landlord but rather seek legal advice to find out what actual entitlements and protections are available to you.

Interestingly, both the landlord and the tenant have an obligation to “act reasonably”, act in “good faith” and to behave “co-operatively”.

It is unfortunate that some landlords are bullying tenants at this time, well aware that tenants are entitled to extensive relief.

The reality is that if you don’t make sure you push for your entitlements it could be costing you thousands or tens of thousands of dollars or more. In some cases, it will be the difference between a tenant surviving during this April to September period. Equally importantly, it will determine when you are required to pay back the portion of the rent which has been deferred.

The reality is that some tenants, in our view, are entitled to 100% waiver or something very close to it and a full waiver of recovery of outgoings, given their particular circumstances. Others are entitled to something which is somewhere in between, but most landlords are not demonstrating that they are very willing to share the burden. This is not to say that some landlords are not sharing the burden, and in some cases very generously, but what we have seen so far is that this is by no means the norm. Hence, there should be firm and determined negotiation.

Can I Still Qualify for Rent Relief Even if I Don’t Qualify for JobKeeper?

Strictly speaking, as a tenant you won’t qualify for rent/outgoings relief under the Regulations if you don’t qualify for JobKeeper. That said, the spirit of the National Cabinet Mandatory Code of Conduct (Code) is such that landlords are supposed to be helpful to tenants at this time. It is certainly worth negotiating with your landlord because many landlords will be open to being helpful if a proper case, with legal reasoning, is put to them.

It also seems sensible that a landlord should be willing to be helpful to a tenant now, even if the tenant just missed out on JobKeeper, to make sure that the tenant is there on the other side of the pandemic. If that is you, it is worth giving it a “red hot go” in explaining your individual circumstances to your landlord. There is no reason why the criteria set out in the Regulations cannot be used to argue the case, not to mention what is embodied in the Code.

What about Outgoings?

Regulation 14(2) reads:

  • A landlord under an eligible lease must consider waiving recovery of any outgoing or other expense payable by a tenant under the eligible lease for any part of the relevant period that the tenant is not able to operate their business at the premises.

What this means in practice is that if the business that qualifies for JobKeeper is closed, and must be closed, thereby earning no income, a landlord must “consider” waiving outgoings. The litmus test is what is “reasonable” in the circumstances. This definition is fairly unhelpful due to its generality, but our view is that a tenant that cannot trade should not be asked to pay outgoings.

Perhaps a number of factors could impact this, including the extent to which the rent is deferred (as opposed) to being waived and the size of the tenant versus the size (and therefore the financial capacity) of the landlord. While it will depend on individual circumstances, it is worth putting a strong argument forward that outgoings should not be recoverable by a landlord, where a tenant simply cannot trade.

Do You Need Legal Advice?

Getting lease advice and clarification about such matters will ultimately save you money in that you will know what the bare minimum you are entitled to. From this stand-point you will be much better placed to negotiate with your landlord.

We are extremely experienced commercial lease lawyers. We act for landlords and tenants and we understand both sides. We’re passionate about seeing tenants treated well, particularly at this very difficult time. We are dealing with COVID-19 rent relief lease cases on a continual basis and as such we have developed considerable experience in negotiating these issues, having regard to this very new law. We can certainly assist you in negotiating with your landlord or the landlord managing agent or the landlord’s lawyers to ensure that you get what you are entitled.

If you seek legal advice, please contact our commercial lease lawyers to discuss your matter on 8397 5000 or complete an enquiry form.

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