The Victorian regulations to implement the National Cabinet’s Mandatory Code of Conduct (National Code) for COVID-19 which impacts landlords and tenants, was passed on Friday 1 May 2020 by the Governor in Council under the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) (Act).

Commercial Leases

The regulations provide clarification and improvements to the practical application of some aspects of the National Code, with the regulations taking effect retrospectively from 29 March 2020 and will remain in effect for six months until 29 September 2020 (COVID-19 period).

It is important for landlords and tenants to be cognisant of the requirements of the regulations in structuring their rent relief arrangements during the COVID-19 period.

The provisions will only apply to eligible leases. Eligible leases include certain retail leases and non-retail commercial leases or licences. Agricultural leases and licences are not covered by these regulations.

In addition to having an eligible lease, the tenant must also be an SME (ie. have turnover of less than $50m) and be participating in the JobKeeper scheme.

Mandated Offer Process

The regulations mandate a process where the tenant must make a request for rent relief, including confirming that it is eligible under the regulations, and the landlord must respond with an offer that complies with the regulations.

To comply with the regulations, the offer must:

• Apply to the relevant COVID-19 period
• Provide no less than 50% of the rent relief by way of waiver of rent (although the parties can otherwise agree in writing that this is not necessary)
• Take into account the reduction in the tenant’s turnover and whether a failure to provide sufficient rent relief might compromise a tenant’s ability to fulfill its obligations under the lease
• Take into account the landlord’s financial ability to offer rent relief

Landlords and tenants must cooperate and act reasonably and in good faith in all discussions regarding matters covered by the regulations.

Protections for Non-payment of Rent

Tenants will not be in breach of their lease and cannot have their lease terminated or be evicted solely for the non-payment of rent during the COVID-19 period. Landlords will also not be permitted to access security (including security in the form of a personal guarantee) relating to the non-payment of rent.

Civil penalties may apply for landlords who breach the protection for non-payment of rent rules.

Other Protections

The regulation also provides for several other protection measures:

• Rent increase is prohibited during the COVID-19 period
• Tenants may reduce business hours or cease business without being in breach of the lease
• The tenant remains liable to pay outgoings payable under the lease, although some provision is made for reducing outgoings. Any reduction in outgoings relating to a premise must be passed on to the tenant
• If rent relief is provided in the form of rent deferral, the landlord must offer the tenant an extension of the lease for the equivalent period of the rental deferral, unless otherwise agreed
• Landlords are prohibited from charging interest or any other fees or charges in relation to the payment of rent deferred by variation

Where a dispute occurs, landlords or tenants may refer any dispute regarding the lease to mediation through the Small Business Commission, and if that mediation fails then they can take the matter to VCAT (and mediation is required prior to any VCAT or court process).

Land Tax Relief

Landlords who provide rent relief to tenants in commercial properties that are subject to the regulations may be eligible to receive land tax relief in Victoria. Eligible landlord will receive a 25% discount on their 2020 land tax and may defer the payment of their remaining 2020 land tax liability until 31 March 2021.

Similarly, landlords who provide rent relief to tenants of residential properties impacted by COVID-19 may also be eligible for the land tax relief.

‘Rent relief’ requires that residential and commercial landlords pass on at least an amount equivalent to the 25% tax discount to their tenants.

Source: Written by Huey Chew, Trident Financial Group. 7th May 2020.