COVID-19 Omnibus Regulations 2020 and Leases in Victoria

Under section 15 of the COVID-19 Omnibus (Emergency Measures) Act 2020 (“the Act”), the Minister for Small Business in Victoria is empowered to pass regulations with respect to measures regarding eligible leases, leasing negotiations and rental reliefs in Victoria. The COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (“Omnibus Regulations”) have now been passed by the Minister, effective 1 May 2020.[1] 

One would be forgiven for not recognising the content of the Mandatory Code of Conduct (“Code”) within the Omnibus Regulations however, upon closer legal analysis they do appear to cover off on the fundamental principles conveyed by the Code.[2] Therefore, the key operations of the Code are also in place in Victoria.[3]

What we propose to focus on here are the parts of the Omnibus Regulations that confirm or otherwise clarify some of the doubts we had when the Act was passed and otherwise provide some key considerations for landlords and tenants alike.

What we know about the Omnibus Regulations

1. What is the “Relevant Period” for relief measures?

The Omnibus Regulations are said to be effective as if in place from 29 March 2020 until 29 September 2020 to start with.

• Therefore, rent relief is backdated to 29 March 2020, if a rent relief request is made and approved. It applies for the full 6 months, which provides clarification as to the Code’s period of operation, referred to as “the COVID-19 pandemic and the reasonable recovery period”. 

• An answer to a rent relief request needs to come within 14 days unless otherwise agreed.

If one lot of rent relief is granted and then the business experiences further decline in finances prior to 29 September 2020, then they can make a subsequent request. No such option exists for the landlord to trigger reconsideration where revenue of a tenant begins to recover, and they come out of Jobkeeper eligibility (which is consistent with JobKeeper’s once in, you’re in until 27 September 2020).

2. What is the “sufficient information” requirement?

The rent relief request needs to annexe financials to support the application (though Jobkeeper eligibility paperwork will likely suffice). If a second lot of rent relief is to be requested, it is treated as a fresh application and further supported by updated financials (again, JobKeeper declaration paperwork would seem the most sensible starting point).

3. What is the definition of “Group”?

The “Group” definition of the Omnibus Regulations uses sections 328-125 and 328-130 of  the  Income  Tax  Assessment  Act 1997 (Cth) (“ITAA”). These tests revolve around control of a business entity and whether it can be deemed to belong to another entity based on factors including shareholdings, directorships, and historical profit distributions. Needless to say, it’s quite complex and we anticipate many queries as to whether a tenant is a member of a ‘group’ or not.

Furthermore, the Code’s carve out of franchisees from the ‘group’ concept has not been made clear. While any genuine franchisees will likely not fail the test and therefore remain eligible (subject to other criteria), if they fit into the definitions required under the ITAA to be exempted it doesn’t actually matter if they’re a franchise on face value.

4.  What are the terms of the Omnibus Regulations?

Parties can agree to not incorporate the following elements of the Omnibus Regulations, but such agreement will need to be clear and in writing:

• Rent increase prohibition;

• Extension for deferral period; and

• Amortisation of deferred rent repayment.

Therefore, you can’t opt out of eligibility under the Code, though a tenant needs to make the application to trigger their rights so there is an ‘opt-in’ element that, with appropriate negotiation, may never need to be exercised.

5. What does “non-eligible” leases mean?

The Act and Omnibus Regulations also provide clarity with respect to non-eligible leases:

• New leases are not eligible leases, i.e. if they’re entered into after 1 May 2020;

• A lease signed but not commencing does fall into eligibility though on first reading of the Act and the Omnibus Regulations together;

• Many leases relating to farming and agricultural activities are carved out specifically under the Omnibus Regulations on the basis there already exists a Farm Debt Mediation program under legislation in each State.

• All eligible leases are taken to have a new cooperation clause as per Reg 8.

6. Victorian Small Business Commissioner and Mediation

The Victorian Small Business Commission (“VSBC”) has been granted, as we suspected, power to mediate over all eligible leases and not just Retail Leases as had been the case in the past.

These mediations by the VSBC are optional but are a precondition to taking any matter to VCAT, Magistrates or County Courts aside from an injunction. The Victorian Supreme Court can grant leave to dispense with VSBC mediation, though in what circumstances is unclear.

Key tips regarding the Omnibus Regulations

When considering deferral versus waiver of rent, landlords will need to consider whether the deferral will force an extension of the lease term under Regulation 13 for the equivalent period

For example, if deferring 3 months’ rent out of 6, and the lease was to end at the end of the 6th month, it is automatically extended another 3 months on the original terms. The deferred rent can be claimed over no less than 24 months as well. If 12 months is left in the lease, it automatically extends to 15 months.

This represents a slight adaptation of the Code’s principle in this respect, which referred to a tenant opting into this rather than it being mandated. The same effect is obtained by the ability mentioned (see point 4 above) for the parties to agree to not extend the lease.

Summation

The Omnibus Regulations are a welcome sight but, as with any new laws, the implementation and interpretation to be given by the courts is always required to crystallise that understanding and clarity. Unlike many other legislative instruments however, the limited timeframe these Omnibus Regulations have to operate might mean that often essential clarity comes too late for some and leaves many operating with a level of uncertainty that might never be remedied. This is not intended as a criticism, given most legislative instruments take months, if not years, to be developed and then subsequently are moulded and chiselled away over many years thereafter until the right mix is found.

What is clear is that legal analysis and advice is going to be the best option for either tenants or landlords to obtain as much clarity as is possible in this environment. That’s why we at DSA Law have a committed team working regularly with landlords and tenants to assist understandings and provide up-to-date and timely advice as and when needed.

How can DSA Law help?

If you have a leasing query arising from COVID-19, the Code, the Omnibus Regulations or just as part of your regular business activities, please don’t hesitate to Contact Us or one of DSA Law’s dedicated commercial leasing team on 03 8595 9580.

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[1] COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (“Omnibus Regulation“); For further information regarding the predecessor, Mandatory Code of Conduct for Commercial and Retail Leases, and how it was implemented in Australia, read our article on 9 April 2020, Mandatory Code of Conduct for Commercial and Retail Leases during the COVID-19 pandemic.

[2] ibid.

[3] For a summary of those principles, read our article on 9 April 2020, Mandatory Code of Conduct for Commercial and Retail Leases during the COVID-19 pandemic.