In brief

In our previous alerts (here and here), we discussed the extension to the New South Wales commercial leasing code regulation and the extensions to the state-based tenancy relief regimes in New South Wales, Victoria and Queensland respectively.

For ease of reference, the comparison table below comprehensively summarises the position in respect of COVID-19 tenancy relief under the relevant state-based legislation in New South Wales, Victoria and Queensland as at 13 January 2021. 


In more detail

Principle Commonwealth New South Wales Victoria Queensland
Relevant code/legislation National Code of Conduct ("National Code")1

 

Retail and Other Commercial Leases (COVID-19) Regulation (No 3) 2020 ("NSW Updated Regulation")

Note: The NSW Updated Regulation repeals the Retail and Other Commercial Leases (COVID-19) Regulation (No 2) 2020 (NSW) ("NSW Regulation No 2").

COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (VIC) ("Regulations") made under the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) ("Original Act")

COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Act 2020 (Vic) ("Extension of Original Act").

COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 ("Amendment Regulations"). 

Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) ("JobKeeper Rules").

Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (QLD) ("Regulations") made under the COVID-19 Emergency Response Act 2020 (QLD) as amended by the COVID-19 Emergency Response and Other Legislation Amendment Act 2020 (Qld).

Amended by the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Amendment Regulation 2020 (Qld).

Applicable period

Initial duration of JobKeeper program, being 4 April 2020 - 27 September 2020.

* The JobKeeper scheme has been extended from 28 September 2020 until 28 March 2021.

The Prescribed Period, being:

For retail tenants, 24 April 2020 - 28 March 2021.

For commercial tenants, 24 April 2020 - 31 December 2020.

29 March 2020 - 28 March 2021.

* The Extension of Original Act allows for the Regulations to operate until 26 April 2021.  As such, Victoria has the option to extend the Regulations further if required.

The Response Period, being 29 March 2020 - 30 September 2020.

The Regulations now expire on 30 April 2021, rather than 31 December 2020. However, the rent relief remains available only for the period until 31 December 2020.

Although rent relief will end on 1 January 2021, the Regulations have been extended so as to prevent landlords from taking action until 1 May 2021 in respect of arrears of rent or outgoings that apply in respect of the Response Period and extension period, and in respect of tenants closing their operations during those periods.

Eligibility requirements

SME tenants 

  • eligible for the National JobKeeper scheme2; and
  • annual turnover of < $50 million.  This extends to turnover both of the relevant entity and all connected and affiliated entities (which may extend to foreign holding companies).  Franchisees are assessed on an individual basis however.
 

 

Commercial lease

Retail shop leases and leases of premises or land for commercial purposes, but excludes:

  • a lease entered into on or after 24 April 2020, subject to certain exceptions (e.g. exercising an option)
  • a lease under the Agricultural Tenancies Act 1990; and
  • a commercial lease within the meaning of Schedule 5 to the Conveyancing (General) Regulation 2018.

Impacted lease

A commercial lease to which an impacted lessee is a party.

Impacted lessee

  • qualifies for the National JobKeeper scheme; and
  • meets the following turnover requirements:
    • for retail tenants: turnover in the 2018-2019 FY of $5 million (assessed at group level for related bodies corporate as defined under the Corporations Act 2001 (Cth))
    • for commercial tenants: turnover in the 2018-2019 FY of < $50 million (assessed at group level for related bodies corporate as defined under the Corporations Act 2001 (Cth)); and
  • for retail tenants: will also qualify for the National JobKeeper scheme on and from 4 January 2021 (which requires that the tenant has experienced a 30% or more decline in turnover in the December quarter 2020 compared to the December quarter 2019 (15% for not-for-profit organisations)).

* The effect of the NSW Updated Regulation is that the exercise or enforcement of all rights under the legislation now only applies to an "Impacted Lease". Similarly, the provision regarding prohibitions and restrictions on the exercise of certain lessor rights now only applies to an impacted lessee.

Eligible leases

Retail lease, non-retail commercial leases or commercial licence, under which the Tenant is:

  • an SME entity (annual turnover is < $50 million, assessed on an aggregated group basis similar to the National Code test); and
  • entitled under section 6, 11 or 12A of the JobKeeper Rules to a JobKeeper payment.

Does not include leases where premises used wholly or predominantly for agricultural, farming, grazing etc.

The Amendment Regulations have clarified that a coronavirus economic response payment (JobKeeper payment) is not turnover.

* The effect of the Extension of Original Act is that the Eligible lease is modified to remove the SME entity and JobKeeper requirements.  However, the Amendment Regulations have reapplied these requirements via its definition of a prescribed eligible lease and the requirements placed on rent relief requests.

Affected leases

Retail shop leases under the Retail Shop Leases Act 1994 (Qld), and non-retail commercial leases for the sole or predominant purpose of carrying on a business at the premises, both where the lessee is:

  • an SME entity, meaning an entity carrying on business in this financial year that expects annual turnover for the current financial year to be less than $50 million, or an entity that had actual annual turnover of less than $50 million in the 2018-2019 financial year, on the basis that turnover includes internet sales but does not include government assistance to mitigate the effects of COVID-19; and
  • either:
    • is eligible for the JobKeeper scheme; or
    • an entity connected with or an affiliate of the lessee employs (or is involved in employing) staff for the business carried on at the premises and is so eligible. 

The criteria for the extension period is limited to the tenant or an entity connected or affiliated with it being required to be eligible for JobKeeper for the period starting 28 September 2020 and ending on 4 January 2021.

Exclusions 

Does not include:

  • a lease under which premises are to be used wholly or predominantly for a farming business under the Farm Business Debt Mediation Act 2017, schedule 1; and
  • most State leases, permits, licences and subleases under the Land Act 1994 (Qld), because the Land (COVID-19 Emergency Response-Waiver and Deferral of Rents and Instalments) Regulation 2020 (Qld) already provides relief to lessees under such arrangements.
Freeze on rent increases (Principle #13) During the Period, and reasonable subsequent recovery period (undefined). This does not extend to components of rent with reference to turnover.

Lessor cannot take any prescribed action after the Period against an Impacted Lessee for failure to pay any rent increased during the Period, other than rent or a component of rent determined by reference to turnover.

* For commercial tenants, the NSW Regulation No 2 extended this prohibition until 31 December 2020.

* For retail tenants, the NSW Updated Regulation extends this prohibition until 28 March 2021.

Unlike NSW, the VIC regulation is silent on whether or not a Landlord is prohibited from recovery of rent increases that would have applied during the Period but for the application of the regulation.

* The Amendment Regulations extend the ban on rent increases until 28 March 2021.

The Lessor under an affected lease must not increase the rent payable by the lessee during the response period or extension period (other than in respect of rent based on turnover).

If the lease provides for a review of rent during the response period or extension period, the Lessor may review the rent under the lease but must not give effect to an increase in rent until the extension period ends, and only in respect of the period after the extension period.

Waivers/deferrals of rent (Principles #3, #4, #5, #10)

Landlords must offer proportionate reductions in rent payable. Rental waivers must constitute no less than 50% of the total reduction in rent payable.

Payment of rental deferrals to be amortised over the balance of the lease term or for a period of no less than 24 months (unless agreed).

No fees, punitive interest or other charges should be applied to rent waived or charged on deferrals.

If negotiated arrangements necessitate repayment, this should occur over an extended period. No repayment should commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government) or the existing lease expiring, and taking into account a reasonable subsequent recovery period.

Cross-reference to National Code. The Regulations require the parties to a commercial lease to which an Impacted Lessee is a party to act in good faith to negotiate rent and other terms at the request of a party.

When negotiating rent, parties are to have regard to:

  • the economic impacts of the COVID-19 pandemic, and
  • the leasing principles set out in the National Code.

Note: A Lessor is not mandated to make offers of rent relief, however, the Lessor cannot take prescribed action against an Impacted Lessee for failure to pay rent during the Period (see below).

* The above changes extend to renegotiations that commenced after 24 April 2020 but had not been completed before commencement of the NSW Updated Regulations (on 23 October 2020). Further, where a renegotiation is commenced but not concluded before 31 December 2020, the renegotiation may be continued and concluded after that date.

Waivers

Upon request by Tenant and supply of evidence, a Landlord must offer rent relief within 14 days or other agreed time, which must, based on all circumstances of the lease:

  • relate to up to 100% of the rent payable
  • comprise a rental waiver in respect of no less than 50% of the rent unless agreed
  • be, at a minimum, proportional to the decline in the Tenants turnover associated with the premise
  • apply to the period from the Tenants request through to 31 December 2020
  • take into account:
    • whether failure to offer relief would compromise a Tenant's capacity to fulfil other obligations
    • reductions to any outgoings charged, imposed or levied etc.

The Amendment Regulations require that Tenant requests set out their decline in revenue only at the premise relief is being applied for.  Additionally, Tenants are required to provide evidence to support the stated decline.

Deferrals

If rent is deferred, the Landlord must offer an extension on the same terms and must not request payment until

28 March 2021.

The deferred rental must be amortised over the greater of:

  • balance of the term; or
  • a period of no less than 24 months.
Landlord must not require Tenant to pay interest/any other fee on rent deferred.

The Regulations require the parties to cooperate and act reasonably and in good faith to negotiate rent and other terms if a request is made.

Waivers

Upon request by any party to the lease, the parties must give each other prescribed information.  The Lessor must then offer a reduction in the amount payable under the lease within 30 days, and any proposed changes to other stated conditions in the lease.

The offer must relate to any or all of the rent payable under the affected lease during the response period and provide for no less than 50% of the rent reduction offered to be in the form of a waiver of rent.  No minimum waiver amount applies during the extension period (i.e. 100% of the rent could be deferred).

The following factors must be taken into account:

  • all of the circumstances of the lessee and affected lease (although the proportion of rent waived does not have to match the reduction in the lessee's turnover)
  • the extent to which the failure to reduce the rent payable under the lease would compromise the lessee's ability to comply with the lessee's obligation under the lease, including the payment of rent
  • the Lessor's financial position, including any relief that the Lessor is receiving; and
  • any reduction in, or waiver of, the amount payable in relation to a portion of the rent or amount payable under the lease which relates to land tax, local government rates, statutory charges or other outgoings.

Deferrals

Where rent relief is provided by way of a deferral:

  • The Lessor must not require payment of any part of the deferred rent until the end of the extension period (unlike some other jurisdictions, this date applies regardless of when the lease ends).
  • The deferred rent is amortised over an agreed period of no less than 2 and no more than 3 years (whereas the obligation to offer an extension of the term is only for a period equivalent to the period in which the waiver or deferral is provided).
  • The Lessor may not impose interest or any other fee or charge on the deferred rent, except to the extent that the lessee fails to comply with the conditions on which the rent is deferred.
  • The Lessor can continue to hold the Lessee's security deposit until the deferred rent is paid (although we note that security deposits are relatively rare, with most security taking the form of a personal guarantee and/or bank guarantee).

Where the Lessor provides a rental waiver and/or deferral, it must also offer the Lessee an extension to the term of the lease (on the same lease conditions), except that the rent during that further period must be adjusted for the waiver or deferral.  The further period must be equivalent to the waiver or deferral period.

However, this obligation does not apply to the extent that either:

  • the Lessor is subject to an inconsistent existing legal obligation, such as a lease that it has granted to a third party, which was due to take effect after the expiry of the current lessee's term; or
  • the Lessor demonstrates that it intends to use the leased premises for a commercial purpose of the Lessor (which is not further explained).
Moratorium on evictions for non-payment of rent (Principle #1) Landlords must not terminate leases due to non-payment of rent during the COVID-19 pandemic period (or reasonable subsequent recovery period).

For retail tenants, the Lessor cannot terminate or exercise a right of re-entry/recovery of the premises for:

  • an Impacted Lessee's failure to pay rent or outgoings; or
  • the business operating under the lease to which an Impacted Lessee is a party not opening for business during hours specified in the lease
* For retail tenants, the NSW Updated Regulation extends this prohibition until 28 March 2021.

Landlord cannot evict Tenant or re-enter premises for:

  • non-payment of rent or outgoings, but Tenant must provide evidence; or
  • reducing or ceasing hours of trade.

* The Amendment Regulations have extended the ban on evictions, except in specific circumstances, until 28 March 2021.

Lessor cannot exercise a right or recovery or evict a lessee for:

  • non-payment of rent
  • failure to pay outgoings; or
  • if the business carried on at the leased premises is not open for business during the hours required under the lease.
Obligation to renegotiate (see Overarching Principles) Landlords and Tenants are required to discuss relevant issues, and to negotiate appropriate temporary leasing arrangements.

A party to a commercial lease to which an Impacted Lessee is a party may request the other parties to renegotiate the rent payable under, and other terms of, the lease. Those parties must then renegotiate the rent payable and other terms under the lease in good faith.

An Impacted Lessee must give the lessor:

  • a statement to the effect that the lessee is an Impacted Lessee; and
  • evidence that the lessee is an Impacted Lessee.

* For retail tenants:

The NSW Updated Regulation now permits parties to make a second or subsequent request to renegotiate the rent payable under, and other terms of, the impacted lease, which must commence 14 days of receipt of the request or as agreed between the parties. This is provided that the request is being made during the Prescribed Period and not relating to rent or outgoings for a period for which a reduction, waiver or deferral of rent or outgoings has been agreed.

* The above changes extend to renegotiations that commenced after 24 April 2020 but had not been completed before commencement of the NSW Updated Regulations (on 23 October 2020). Further, where a renegotiation is commenced but not concluded before 31 December 2020, the renegotiation may be continued and concluded after that date.

Following receipt of a request from a Tenant (Tenant Request), and offer of rent relief by Landlord, parties must negotiate in good faith.

A Tenant Request must be in writing, and accompanied by a statement that:

  • the Tenant's lease is an eligible lease; and
  • the Tenant is an SME entity and is entitled to a JobKeeper payment under the JobKeeper Rules; and
  • provides specified evidence of the Tenants participation in the JobKeeper scheme and their decline in revenue.

* The Updated Regulations require commercial Landlords to provide rent relief, at a minimum, in proportion to the fall in turnover being experienced by eligible Tenants.

A party to an affected lease may, in writing, ask another party to the lease to negotiate the rent payable under, and other stated conditions of, the lease.

After a request is made, the parties must, as soon as practicable, exchange information relating to the request that is correct and sufficient to enable the lessor to make an offer and then the parties to negotiate in a fair and transparent manner.

Reductions/waivers of other payments (Principles #6, #7, #8)

Any reduction in statutory charges or insurance, or any benefit the Landlord receives due to the deferral of loan repayments, must be proportionately passed on/shared with the SME Tenant.

Landlords should seek to waive recovery of any other expense.

An Impacted Lessee is to benefit from any reductions in land tax, statutory charges or insurance costs payable by the Lessor.

* The NSW Updated Regulation extends this right until 31 December 2020.

Landlord must consider waiving recovery of any outgoing or other expense. If Tenant is not able to operate their business, Landlord may acting reasonably or as reasonably requested by Tenant, cease to provide, or reduce provision of any service.

If any outgoings charged, imposed or levied are reduced:

  • Tenant not required to pay any amount that is greater than a Tenant's proportional share of the reduced outgoing payable.
  • If Tenant has or does pay such excess amount, Landlord must reimburse that excess to Tenant as soon as possible.

In offering the Lessee a reduction in the amount payable under the lease, the offer must have regard to any reduction in, or waiver of, the amount payable in relation to applicable amounts in the lease for land tax, local government rates, statutory charges, insurance premiums or other outgoings.

There is no explicit obligation to waive the recovery of outgoings or to proportionately reduce the lessee's outgoings by the amount of any waiver or other reduction provided by the Lessor.

Recourse to lease security (Principle #11) Landlord must not draw on an SME Tenant's security for the non-payment of rent during the Period and/or a reasonable subsequent recovery period.

For retail tenants, if a lessee is an Impacted Lessee, the Lessor cannot recover the whole or part of a security bond, a guarantor or bank guarantee if there is any failure to pay rent or outgoings, or the business operating under the lease fails to operate for business during hours specified in the lease.

Landlord cannot (or attempt to) have recourse to any security relating to the non-payment of rent or outgoings. Lessor cannot recover a claim on a bank guarantee, indemnity or security deposit for unpaid rent or outgoings that arise in the response period.
Other rights/obligations (Principles #2, #9, #14)

SME Tenants must remain committed to the terms of their lease. Material failure to abide by substantive terms of their lease will forfeit any protections provided to SME Tenants under this National Code.

Landlords may not apply any prohibition or levy any penalties if SME Tenant reduces opening hours/ceases trade.

If a lessee is an Impacted Lessee, unless the obligation to renegotiate and the dispute resolution provision have been complied with by the Lessor, certain other prescribed actions cannot be taken by the Lessor for breach of the lease occurring during the Prescribed Period consisting of either failure to pay rent or outgoings, or failure to operate business during hours specified in lease, including:

  • claim damages
  • require performance of obligations by the Impacted Lessee or any other person under a guarantee under the lease
  • claim any other remedy otherwise available to the Lessor

* For commercial tenants, the NSW Regulation No 2 extended this prohibition until 31 December 2020.

* For retail tenants, the NSW Updated Regulation extends this prohibition until 28 March 2021.

However, nothing prevents the Lessor and Impacted Lessee agreeing to the parties taking action in relation to the lease, including the Lessor taking prescribed action or the parties agreeing to terminate the lease.

General obligations

  • Landlords and Tenants must cooperate and act reasonably and in good faith in all relevant discussions and actions.
  • Parties must not divulge or communicate protected information obtained in connection with the Regulations.

Landlord rights

Landlord may give the statement and information it has received under a Tenant Request to the Commissioner of State Revenue when applying for a tax relief measure in relation to any tax paid or required to be paid by the Landlord in relation to the premises.

Tenant rights

After rent relief has been given a Tenant may make a subsequent request for rent relief where:

  • there has been a material change to their financial circumstances
  • the relief is not proportionate to their decline in revenue; or
  • the relief does not apply to the whole period from the date of the request until 28 March 2021.

The Amendment Regulations now provide for Tenants who have received, or have made requests for, rent relief and subsequently become ineligible for JobKeeper to have their lease continue to be treated as an eligible lease by the Regulations.

General obligations

Lessors and Lessees must cooperate and act reasonably and in good faith in all discussions and actions relating to mitigating the effect of the COVID-19 emergency on the parties to the lease.

A Lessor under an affected lease must not take a prescribed action on any of the following grounds, occurring wholly or partly during the response period or extension period:

  • failure to pay rent
  • failure to pay outgoings; and
  • the business carried on at the leased premises not being open for business during the hours required under the lease during the response period.

Confidentiality obligations apply to the information disclosed as a result of the Regulation.

Any party may seek to negotiate a further reduction in rent during the response period or extension period if a ground on which the renegotiation was based changes in a material way.  In such circumstances, the renegotiation process will recommence and this time it is possible to negotiate an increase in rent, and the lessor's revised offer can include a rent waiver of less than 50%.

Dispute resolution

Applicable state or territory retail/commercial leasing dispute resolution processes for binding mediation.

Parties are not to use mediation processes to prolong or frustrate the facilitation of amicable resolution outcomes.

Retail leases

Dealt with under the Retail Leases Act 1994 as if they were retail tenancy disputes under the Act.

Impacted leases under the NSW Updated Regulation

Dealt with by the Small Business Commissioner for mediation.

Commissioner must certify that mediation has failed and given reasons for the failure before Court proceedings can take place.

* The above changes extend to renegotiations that commenced after 24 April 2020 but had not been completed before commencement of the NSW Updated Regulations (on 23 October 2020). Further, where a renegotiation is commenced but not concluded before 31 December 2020, the renegotiation may be continued and concluded after that date. However, they do not extend to a matter for which proceedings have been commenced.

Parties may refer a dispute to the Small Business Commission for mediation at which the parties may have legal representation.

Disputes may only be the subject of a proceeding in Victorian Civil and Administrative tribunal or a court if the Small Business Commission has certified (via a regulation 20A certificate) that mediation has failed, is unlikely to resolve the dispute, or the Landlord has not engaged in the mediation in good faith.

The Amendment Regulations have given the Victorian Small Business Commission ("Commission") the power to make binding rent relief orders where:

  • the dispute relates to a request for rent relief under the Regulations; and
  • the Commission has issued a regulation 20A certificate stating either that the Landlord has not responded to the dispute notice or has not engaged in mediation in good faith; and
  • the Tenant has not commenced proceedings in VCAT or a court

The Commission may order a Landlord to waive part or all of the rent payable and or defer payment of part of the rent payable.

Landlords and Tenants may apply to VCAT for a review of Commission decisions relating to binding orders.  Additionally, Tenants may apply to VCAT to enforce landlord compliance with a binding order made by the Commission.

The parties must attempt to resolve the dispute prior to starting mediation. Disputes are then intended to be referred to the new temporary Small Business Commissioner, who will refer the parties to mediation.  The Small Business Commissioner will not compel an outcome. If mediation fails, and in other limited circumstances, the parties may proceed to QCAT or to a court with the required jurisdiction.

Stays or suspensions are applicable to proceedings or actions that were under way before the Regulations were released on 28 May 2020, and existing retail disputes can continue to be resolved under the existing retail leasing legislation.

The Regulation does provide for alternative dispute resolution processes such as arbitration, if desired by the parties.