COVID-19 Rent Relief Regulations are now in place

The Commercial Leases and Licences Regulations ( the Regulations ) have now come into force and will be applied with retrospective effect from 29 March 2020 and continue until 29 September 2020.  

These Regulations provide the guidelines for landlords and tenants to deal with rent relief for those impacted by the COVID-19 pandemic.

Who is impacted by the Regulations?

Only eligible leases are subject to the Regulations, and we have explained the concept of an eligible lease in a previous Tax Alert – click here .

Basically, a tenant needs to be eligible for (and take up) the JobKeeper Payment scheme, however we note that some types of leases are excluded.

What do the Regulations stipulate?

A requirement for tenants to make a formal request for rent relief in writing and the tenant confirming with the landlord that the lease is an "eligible lease" under the Regulations:

•   Landlords and tenants must act in good faith in negotiations;
• The landlord has 14 days to respond to a request for rent relief to make an offer for rent relief;
• The landlord's offer must take into account all the relevant circumstances , including: the financial capacity of both the tenant and landlord, whether the premises can be used, whether the failure to provide rent relief will affect the tenant's ability to perform ongoing obligations under the lease and any reduction in outgoings charged;
• At least 50% of the rent relief must be a waiver of rent;
• The Small Business Commissioner may impose guidelines on what information tenants are to provide landlords;
• Landlords must consider waiving outgoings or other expenses payable by a tenant during any period where the tenant is not able to operate at the premises and in turn, landlords can reduce or cease services provided at the premises where premises are not being used;
• Rents can not be increased until after 29 September 2020;
• If financial circumstances of a tenant materially change after a variation to the lease has been made, the tenant may make a further request to the landlord for rent relief ;
• Landlords will need to be very careful of terminating leases as there are various prohibitions on termination of leases during the period of the regulations and penalties can be imposed on landlords; and
• Mediation offered by the Small Business Commissioner for disputes between landlords and tenants at no cost (other than your own legal representation).

How do the Regulations interact with Land Tax Relief?

Landlords that have provided rent relief to a tenant, under these "eligible lease" Regulations, may apply to the Victorian State Revenue Office ( SRO ) for a land tax discount of 25% and potentially the ability to defer the remainder of their land tax liability until 31 March 2021.   We have explained how to make this claim with the SRO in a previous Tax Alert – click here .

Land tax relief may be available to landlords who cannot find a tenant because of the economic downturn caused by the COVID-19 pandemic.  

We recommend that landlords carefully consider your eligibility for land tax relief before incorporating this into any agreement with a tenant, as not all landlords will be able to obtain the land tax discount of 25%.

Seeking Advice when Negotiating rent relief and Detailed Documentation

We note it is important before any agreement for rent relief is reached, you seek professional advice to ensure you have received sufficient information about the financial status of your tenant and considered all available information/guidelines which may impact the how (and when) your premises can be used as COVID-19 restrictions are lifted.

It is important that all negotiations leading up to any rent relief agreement be properly and carefully documented.   This may help mitigate the possibility of a tenant potentially taking legal action against their landlord in the future.

It is critical that any variation of the lease be prepared and documented by your normal legal advisers , for the following reasons:

• Providing clarity to both parties as to what details have been agreed, in particular what rent relief is provided and for how long;
• Help avoid future disputes into what exactly the agreement concluded, and this will be most relevant where any ongoing negotiations have developed over numerous correspondence; and

It will give clearly defined terms of the rent relief agreement for any new tenant or successor landlord who purchases the property before the rent relief is repaid.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.