Legal Insights

Victorian COVID-19 Commercial Tenancies Legislation

By Marine Nincevic, Guy O'Connor, Stella Wild

• 24 April 2020 • 6 min read

The National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 (Code) established leasing principles to apply to commercial leases, but made it clear that each jurisdiction would introduce legislation to implement those leasing principles.

Since the release of the Code, there have been many questions regarding the practical and legal interpretation of those leasing principles and how they would be implemented under the relevant legislation to be introduced in Victoria.

It was hoped that many of the questions raised would be clarified by the COVID-19 Omnibus (Emergency Measures) Bill 2020 passed by the Victorian Parliament on 23 April (Legislation), and that the Legislation would provide landlords, tenants and practitioners with certainty regarding the practical and legal application of the leasing principles in the Code.

Unfortunately, while the Legislation does define which leases are 'eligible lease' for the purpose of the Legislation, there are very few other substantive provisions in the Legislation which assist in answering the many queries arising under the Code.

Effectively what the Legislation does is provide broad power to the Minister for Small Business to recommend regulations to implement the leasing principles set out in the Code and to respond to the COVID-19 pandemic. The Legislation contains detailed provisions regarding what the regulations can address, but no detail about what those regulations will contain. Accordingly, we will need to wait to see those regulations before definitive answers can be provided to the many queries relating to the meaning and application of the leasing principles in the Code.

This continues the unsatisfactory position of landlords and tenants not having certainty about their respective rights and obligations

Definition of 'eligible lease'

One item which has been made clearer from the Legislation, is those tenancies to which the Legislation applies. It is now clear that the Legislation will apply to a retail lease (being a lease to which the Retail Leases Act 2003 applies) and a non-retail commercial lease or licence, in both cases where the tenant/licensee is a participant in the JobKeeper scheme and has turnover of less than $50 million.

A non-retail commercial lease or licence is a lease or licence of premises which are let for the sole or predominant purpose of carrying on a business at the premises.

It is also now clear that licences are covered where the licensee has the right to occupy, non-exclusively, a part of the premises for the purpose of carrying on a business at the occupied premises. This was certainly not clearly specified in the Code.

The incorporation of licences makes it clear that the Legislation will catch franchise arrangements where the franchisor is the tenant under the lease and grants a licence to the franchisee to occupy the premises. However, it remains unclear what relief (if any) a franchisor is entitled to claim against the landlord if the franchisor has turnover in excess of $50 million (and is therefore not covered by the Legislation), but is required to provide rent relief to the franchisee under the licence.

The Legislation provides that an 'eligible lease' will not include a retail lease or a non-retail commercial lease or licence of a specified class that is 'prescribed'. No details are available regarding what (if any) lease or licence arrangements may be prescribed as being not subject to the Legislation.

The Legislation also provides a mechanism for excluding a retail lease or a non-retail commercial lease or licence from being an eligible lease where the tenant/licensee is a member of a prescribed group or has a relationship with another prescribed entity where the aggregate turnover of those entities exceeds the prescribed amount. This appears to be intended to ensure that the appropriate corporate structure of an individual tenant considered when determining whether that tenant should be treated as a member of that group for the purposes of the Legislation. Again, the regulations will need to be reviewed to determine which, and how, relevant entities are prescribed for the purposes of interpreting these provisions.

The Code included a statement:

“the principles of the Code should nevertheless apply in spirit to all leasing arrangements for affected businesses, having regard to the size and financial structure of those businesses”.

This statement is not reflected in the Legislation which applies only to eligible leases. Accordingly, it appears that this aspiration has no legal force or effect, and that leases which are not eligible leases under the Legislation will remain subject to existing common law and contractual principles.

Making of regulations

While the Minister for Small Business has wide powers under the Legislation to recommend that the Governor in Council make regulations relating to the implementation of the leasing principles in the Code and other relevant matters, the Minister may only recommend that regulations be made where the Minister is of the opinion that the regulations to be made are reasonably necessary for responding to the COVID-19 pandemic.

The Legislation makes it clear that any regulations made will prevail over any other contrary provision in any other Act or at common law.

The Legislation also provides that any regulations made by the Governor in Council on the recommendation of the Minister may be disallowed in whole or in part by either House of Parliament. This provides a form of parliamentary oversight regarding any regulations made by the Minister.

Binding mediation

The Code indicated that there would be a binding mediation process to resolve any disputes between landlords and tenants. The Legislation makes it clear that this means that landlords and tenants will be required to attend mediation as a precondition to commencing any other legal proceedings. However, the mediation will remain non-binding, and the mediator will not have power to make any binding determinations.

Commencement of Legislation

The Legislation is intended to come into operation on the day after the day on which it receives royal assent. It is expected that this will occur as soon as practicable. However, the Legislation provides that regulations made under the Legislation may have retrospective effect to a day not earlier than 29 March 2020.

Accordingly, it is likely that some, if not all, regulations will apply as and from 29 March 2020, being the date that the Prime Minister initially announced the rent relief measures which were subsequently included in the Code. Landlords and tenants will be bound to comply with the requirements of the regulations as and from the date they are expressed to apply, even though the regulations were not in force at that date. Any agreements reached between, or actions taken by, tenants and landlords under an eligible lease from that date will need to be assessed to ensure that those agreements or actions comply with the requirements of the regulations.

The Legislation is expressed to be temporary and will be repealed on the day that is 6 months after its commencement. Any regulations in force immediately before the expiry of that 6-month period are also revoked on that day.

Next steps

There remain many questions regarding the application of the leasing principles in the Code and how they are applied under the Legislation. We will need to wait for more detailed regulations to be made in accordance with the Legislation before answers to many of those outstanding queries can be provided with any certainty.

We will provide further updates as and when regulations are issued and more information becomes available.

Maddocks has produced guides to a range of legal issues raised by COVID-19. You can access these guides here.

Need guidance understanding your rights and obligations under your leases or licences, and the impacts of the Code and the Legislation on those rights and obligations?

One of our dedicated team members can assist.

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