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Retail or commercial leases in Victoria and COVID-19 – what the new legislation means

28 April 2020

#Property & Real Estate, #COVID-19

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Retail or commercial leases in Victoria and COVID-19 – what the new legislation means

On 23 April 2020, the Victorian Parliament passed the eagerly anticipated COVID-19 Omnibus (Emergency Measures) Act 2020 (Act), the purpose of which is to modify certain laws in Victoria for the purposes of responding to the COVID-19 pandemic.

Part 2.2 of the Act sets out a number of ways in which Victoria’s laws relating to retail leases and non-retail commercial leases and licences will be modified, but it does not go so far as to enact the National Cabinet’s Mandatory Code of Conduct: SME Commercial Leasing Principles during COVID-19 (Code). Instead, the Act contains a comprehensive list of matters in respect of which the Governor can make regulations about – more on this below.

Until the regulations are made, landlords and tenants remain in the dark as to how the principles of the Code will be applied in Victoria. 

However, the Act does provide important clarity in respect of some matters dealt with in the Code – particularly, which leases will be subject to the regime.

The key take away points from the Act with respect to leases in Victoria are set out below.

Which leases does it apply to?

The term used in the Act is “eligible lease”. An eligible lease is defined to be a retail lease (within the meaning of the Retail Leases Act 2003) or a non-retail commercial lease or licence (being a lease of premises which are used for the sole or predominant purpose of carrying on a business which is not retail, or a commercial licence):

  • that is in effect on the day the first regulations made under the Act come into operation
  • under which the tenant is, on or after the commencement of the first regulations made under the Act:
    • an SME entity
    • an employer who qualifies for the JobKeeper payment scheme and is a participant in this scheme. 

(Note: the requirement to be a participant in the JobKeeper payment scheme does not appear in the Code, and at this stage appears to be unique to Victoria).

A business will meet the definition of SME entity if its annual turnover for the current year is likely to be less than $50 million, and its annual turnover in the previous year was less than $50 million.

There are, however, some exceptions. A retail or commercial lease/licence will not be an eligible lease if:

  • the tenant is a member of a prescribed group of entities, and the aggregate turnover of that group exceeds $50 million
  • there is a relationship or connection between the tenant and another entity that is prescribed, and the aggregate turnover of the tenant and the other entity exceeds $50 million; or
  • an entity has a prescribed method of control or influence, through the holding of a prescribed interest, right or power, in relation to acts or decisions relating to the ownership, management or affairs of a tenant under the lease that is a body corporate.

These matters are expected to be dealt with further in the regulations. 

When will the Act (and the regulations) take effect?

The Act provides that any regulations made under the Act may have retrospective effect, to a day not earlier than 29 March 2020 (presumably in order to capture rent due on 1 April 2020). 

They will automatically cease six months after the commencement date of the Act.

What will the regulations look like?

The Act provides that regulations may be made in respect of the following matters:

  • prohibiting the termination of eligible leases
  • changing any period under an eligible lease, certain acts or regulations made under certain acts (including the Retail Leases Act, the Property Law Act, the Transfer of Land Act and the Land Act) in relation to an eligible lease in which someone must or may do something
  • changing or limiting any other right of a landlord under an eligible lease or the relevant acts
  • changing or limiting any other right a person who is a landlord under an eligible lease has under an agreement related to that eligible lease
  • exempting a landlord or tenant from having to comply with an eligible lease, a provision of a relevant act or an agreement related to an eligible lease
  • modifying the operation of an eligible lease or an agreement related to it
  • modifying the application of the relevant acts to an eligible lease
  • extending the period during which an eligible lease is in effect
  • imposing new obligations on landlords or tenants, including requiring them to negotiate amendments to an eligible lease
  • requiring landlords and tenants in dispute about the terms of an eligible lease to participate in mediation at the Victorian Small Business Commission (VSBC) and to obtain a mediation certificate before commencing legal proceedings
  • giving the Victorian Civil and Administrative Tribunal (VCAT) jurisdiction to hear and determine disputes about the terms of eligible retail leases.

We will provide a further update on the position in Victoria when the regulations are made available. In the meantime, should you have any queries regarding these developments and how they may apply to your business, please feel free to contact us for a discussion.

Authors: Chris Brodrick & Alana Giles
Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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