COVID-19 Commercial Lease Issues

If your business premises is rented and your business has been adversely affected by the COVID-19 pandemic, you may be struggling to pay your expenses, especially the rent of your business premises.

Here is what you can do under the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (“the Regulations”).

When is it effective? i.e. the relevant period

It covers the period between 29th March 2020 to 29th September 2020.

Rent Relief

Firstly, are you eligible for the reliefs?

You are eligible for the reliefs if your business:

• is a Small Business Entity (SME) with an annual turnover of no more than $50 million; and

• qualifies for the government’s JobKeeper Scheme.

You are not eligible if your business:

• is part of a prescribed group within the meaning of section 328-125 of the Income Tax Assessment Act 1997 (Cth) (ITAA) and the aggregate turnover exceeds $50 million; or

• has a prescribed relationship or connection with another entity within the meaning of section 328-130 of the ITAA and the aggregate turnover exceeds $50 million; or

• has a lease or licence to use the premises for agricultural, pastoral, horticultural, apicultural, farming or grazing activities, or any activity prescribed for the purposes of paragraph (c) of the definition of farming operation in section 3 of the Farm Debt Mediation Act 2011.

How do you request for rent relief?

Under the Regulations, you have to comply with a series of procedures in order to qualify for rent relief.

1.      Make a request to your landlord in writing

Your request must include:

(a)  A statement by you that your lease is eligible; and

(b)  Information that evidences that your business is an SME entity and qualifies for, and participates in, the government’s JobKeeper Scheme.

2.      Upon receipt of your request, your landlord has 14 days to respond with an offer of rent relief (or a different time frame if agreed between you and the landlord in writing)

Your landlord’s offer of rent relief must be based on all the circumstances of your lease and—

(a)     relate to up to 100% of the rent payable under your lease during the relevant period; and

(b)    provide that no less than 50% of the rent relief offered must be in the form of a waiver of rent, unless you and the landlord otherwise agree in writing; and

(c)     apply to the relevant period (between 29th March 2020 and 29th September 2020); and

(d)    take into account—

(i)    the reduction in your business’s turnover associated with the premises during the relevant period; and

(ii)  any waiver for outgoings payable by you under the lease for any part of the period your business is unable to operate at the premises; and

(iii)whether a failure to offer sufficient rent relief would compromise your capacity to fulfil your ongoing obligations as tenants under the lease, including the payment of rent; and

(iv) the landlord's financial ability to offer rent relief (including any relief provided to a landlord by any of its lenders as a response to the COVID-19 pandemic); and

(v)  any reduction to any outgoings charged, imposed or levied in relation to the premises.

While there is no prescribed amount or percentage of rent relief tenants are entitled to, landlords and tenants are required to act reasonably and in good faith in all negotiations and actions.

3.      Further rent relief request

Should your business’s financial circumstances materially change after a rent relief agreement has been reached, you may make a further request to your landord for further rent relief. You and your landlord must follow the same procedural processes in the regulations for that further rent relief.

Rent Increases

Landlords must not increase the rent payable under the lease between 29th March 2020 to 29th September 2020 (unless otherwise agreed in writing between you and your landlord).

Eviction

Your landlord is not allowed to evict you from the premises between 29th March 2020 to 29th September 2020 if you are behind in rent due to the COVID-19 pandemic (unless your landlord gets a termination order or possession order). They are also not allowed to re-enter or otherwise recover the premises during this period of time.

Deferred Rent

If agreed upon between you and your landlord for rent to be deferred:

• Your landlord must not require payment of any part of that deferred rent until the earlier of 29th September 2020 or the expiry of the lease; and

• Your landlord must offer an extension of the term of your lease on the same terms and conditions that applied under the lease before the commencement of these Regulations. The extension offered by your landlord must be equivalent to the period for which rent is deferred (unless otherwise agreed in writing between you and your landlord).

You and your landlord must also agree for you to repay any deferred rent over the greater of the balance of the term of the lease or a period of no less than 24 months. 

Outgoings/Expenses

If the outgoings payable by your landlord is reduced, they must reduce the amount payable by you in relation to these outgoings commensurately.

This article is for general information purposes only and should not be relied on as legal advice. For specific and up-to-date legal advice regarding your situation please contact a qualified lawyer.