If Your Business is Struggling With Commercial Lease Rent Due to COVID-19, Relief Might be Available.
On 1 May, the Victorian Parliament passed the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations under the COVID-19 Omnibus (Emergency Measures) Act 2020.
These regulations, covering the period 29 March 2020 to 29 September 2020, modify existing laws relating to commercial leases. They aim is to mitigate the adverse effects of measures taken in response to the COVID-19 pandemic at a time when many businesses have had to shut their doors or significantly reduce business operations.
Commercial Lease Relief Eligibility
A retail or commercial lease is an “eligible lease” if:
- It was in effect on the day the regulations came into operation; and
- The tenant is:
- an SME entity (annual turnover under $50 million)
- an employer who qualifies for, and is participating in, the JobKeeper scheme.
Some exceptions apply.
Impact on Commercial Lease Laws
These regulations were brought in to offer tenants and landlords a framework to negotiate rent relief, reduction of services and tenant protection against eviction.
A tenant experiencing financial difficulty due to COVID-19 restrictions can make a request for rent relief which must:
- Be in writing;
- Include a statement that the lease is eligible; and
- Include information that the tenant is eligible.
If the request is made in the correct form, landlords must provide rent relief. This can be negotiated but should allow the tenant to fulfil their ongoing lease obligations. Landlords can offer relief of up to 100% of the total rent, with no more than 50% of the relief being deferral of rent. If there is a deferral of rent, the landlord must also offer an extension to the lease.
If the tenant cannot operate their business, the landlord can cease or reduce services usually included in the lease – such as electricity, water or cleaning – which is to help ease the burden on landlords.
If a tenant cannot carry on their business, closes their premises or reduces their opening hours, landlords cannot:
- Evict the tenant
- Attempt to recover the premises; or
- Call in any security relating to the non-payment of rent.
How Do I Negotiate a Commercial Lease?
If you are a tenant whose business has been affected by the COVID-19 pandemic, or a commercial landlord whose tenant cannot pay the rent, you must negotiate in good faith.
By opening discussions early, and approaching the other party in a spirit of cooperation, you are likely to achieve a better outcome and healthy ongoing working relationship. Negotiations should bear in mind that both tenants and landlords have financial obligations to meet.
When negotiating, take into account:
- The landlord’s financial situation (including whether their financial institution is prepared to offer mortgage relief where applicable);
- The tenant’s reduction in turnover and the likelihood of their business being able to resume
- Whether the proposed rent relief will allow the tenant to meet their continuing obligations under the lease.
If negotiations fail, you can ask the Victorian Small Business Commissioner to mediate the dispute, which is a compulsory first step before proceeding to VCAT or the courts.