The Victorian Parliament passed a package of temporary changes to laws in 14 different areas dealing with COVID-19 issues at 7.00 pm on Thursday 23 April 2020, including commercial and retail leases. Although the COVID-19 Omnibus (Emergency Measures) Bill 2020 (‘Bill’) does not provide any further certainty in respect of the adoption of the National Cabinet Mandatory Code of Conduct (‘Code‘), it allows for regulations to be made dealing with issues raised by it. We are eagerly awaiting these regulations.
The purpose of the Bill, according to its explanatory memorandum, is to “temporarily amend certain Acts, and to temporarily empower the making of regulations, to modify the application of the law in Victoria in certain respects for the purpose of responding to the COVID-19 pandemic”.
The Bill provides a long-awaited response to issues that have arisen from the COVID-19 pandemic, however it does not specifically mandate the application of the Code . It has retrospective application, applying from 29 March 2020, and has wide-reaching implications in many areas. Insofar as commercial and retail leases and licenses are concerned, the main points to note are set out below.
Eligible Leases
The Bill gives effect to the Code of Conduct in respect of ‘eligible leases’.
An eligible lease is a retail lease or a non-retail commercial leases licence; and under which a tenant is
- an SME entity with an annual turnover of up to $50 million; and
- is an employer who qualifies for the jobkeeper scheme and is a participant in that scheme.
For these tenants, assuming they are not charities, this also means that their business needs to have lost 30% or more of its revenue compared to a comparable period 12 months ago.
Exclusions
Even if the above criteria are met, certain retail leases or non-retail commercial leases will not be eligible leases, where:
- the tenant is a member of a group of entities and the aggregate turnover of the group exceeds the $50 million threshold amount – this applies to local wholly owned subsidiaries of listed companies or a large group of companies.
- the tenant has a relationship or connection with another entity under the lease or licence, and the aggregate turnover of the tenant and the other entity exceeds $50 million.
- an entity has a certain method of control or influence, through holding certain interests, rights or powers in relation to acts or decisions relating to the ownership, management or affairs of a tenant under the lease or licence that is a body corporate
This is consistent with the Code of Conduct, which states that the $50 million threshold applies in relation to retail corporate groups at group level. This means that if a tenant is a business that belongs to a larger group with an aggregate turnover of more than $50 million, the tenant will not be eligible for rent relief under this legislation.
Hopefully, the awaited regulations will provide greater certainty around the corporate group exclusions regarding the application of the Code of Conduct.
Dispute Resolution
New dispute resolution powers are also included in the Bill, which will empower the Small Business Commission to:
- make arrangements to facilitate the resolution by mediation of disputes between landlords and tenants under an eligible lease about the terms of the lease;
- monitor compliance with the regulations; and
- commence proceedings for offences under the regulations.
Next Steps:
Once the Bill receives Royal Assent and becomes law, which is expected to take place within 5-10 working days in the ordinary course, we expect regulations will promptly follow.
We anticipate that the regulations will contain guidance around the adoption of the Code, clarity around which leases and tenants fall outside of its scope and an indication of the consequences for non-compliance. It’s not quite the silver bullet we were expecting, but it’s a start.
We’ll keep you posted. If you have any questions in the interim, don’t hesitate to contact us.