Landlords and Tenants in Lockdown: Revisiting Commercial Rent Relief

Commercial Tenants and Landlords find themselves in lockdown once again in Victoria. The second round of Stage 3 lockdown restrictions have brought increased pressure to bear on businesses that have been forced to once again shut down or significantly reduce their ability to generate revenue, potentially affecting the ability of some to financially survive this pandemic.

As previously reported in our News Hub ( https://www.prismalegal.com.au/victorian-regulations-commercial-leasing-rent-land-tax-relief/ ), the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licenses) Regulations 2020 (Regulations) provided a regime for tenants and landlords to enter into good faith negotiations regarding rent relief for the duration of the pandemic.

If you have already reached an agreement with your commercial landlord or tenant about rent relief, you may need to revisit your arrangement in light of the new lockdown. If you have been adversely impacted because your business has needed to close or significantly limit its services due to the latest round of restrictions, now is the time to re-evaluate your agreement.

Regulation 11(1) provides that if the tenant’s financial circumstances ‘materially change’ after a variation to their lease has been made, then the tenant may make a further request to the landlord for rent relief under Regulation 10.

This means that a tenant can recommence rent relief negotiations even if they have signed a deed of variation or other agreement, provided that their circumstances have ‘materially changed’. While the Regulations do not make it clear what ‘materially changed’ means, if the tenant cannot afford to comply with the terms of their existing temporary rent relief arrangements then this should be a sufficient basis to request further relief.

On receipt of that request, the landlord and tenant must follow the rent relief process set out in the Regulations 10, namely rent relief must:

  1. relate to 100% of the rent payable under the lease;
  2. take into account the tenant’s reduction in turnover; and
  3. take into account whether the failure to offer sufficient relief will compromise the tenant’s ability to fulfil their ongoing obligations under the lease, including the payment of rent.

Two key things for landlords to keep in mind when making their second round rent relief offer are:

  1. the rent relief offer provided to a tenant must take into account the landlord’s financial ability to offer rent relief. This means a landlord is entitled to take into account its financial circumstances but must also factor in any relief provided to it by its lenders in response to the pandemic; and
  2. in this second round of rent relief negotiations, the landlord is not obliged to include at least 50% of its rent relief in the form of a waiver.

This provides the landlord with greater flexibility to for example, provide greater immediate relief to its tenant but require that further rent reduction to be paid back in the form of a deferral.

Keeping the lines of communication open and engaging in productive and transparent negotiations will be crucial to making sure that both landlords and tenants alike can get through the challenges ahead. Tenants are challenged by limited revenue and many landlords are challenged by the fact that rent is their main source of income.

If you are a landlord or tenant who has already come to an agreement in respect to rent relief, or you are still negotiating rent relief, we can help you navigate your way through the Regulations and get you across the line.

Remember, tenants cannot simply stop paying rent and both parties need to come to the negotiating table in good faith to come to a solution that they can each live with.

Compromise is key.