Retail and Commercial Leases during COVID-19

The Covid-19 pandemic has created a great deal of uncertainty for all individuals and businesses, especially in regards to the ability to operate and to pay their bills.

The Federal and State Governments have introduced measures to assist landlords and tenants to work together to find common ground to ensure that all parties can continue to fulfil their obligations under the lease, and that tenancies can continue throughout, and after the pandemic lockdown periods.

Provided that the tenant’s business is eligible for, and is participating in the JobKeeper Scheme, and is not a party to an excluded lease, the requirement to negotiate rental waivers and deferrals is mandatory.

The Victorian Government has prescribed the following minimum starting point for provisions to be included in agreements to temporarily vary leases. Such variations will be applicable for the six month period between 29 March 2020, and 29 September 2020 (Relevant Period).

During the Relevant Period:

  1. Landlords are prohibited from terminating the lease;
  2. Landlords are prohibited from calling on any security provided under the lease;
  3. Landlords are prohibited from increasing the rent, including scheduled rental increases;
  4. Rental payments must be adjusted to account for 100% of the downturn in the tenant’s turnover;
  5. A minimum of 50% of the adjustment referred to in item 3 must be by way of rental waiver, and the balance must be a rental deferral;
  6. If the parties cannot reach an agreement or a party refuses to negotiate, the matter can immediately be referred to mediation.

Penalties apply to landlords who refuse to negotiate with tenants of eligible leases.

It should be noted that tenants do not have a legal right to simply cease paying rent, and are not automatically entitled to a waiver of rent in excess of 50% of the downturn in turnover.

The ultimate agreement made, and whether a set waiver is put in place, or a varying waiver, subject to monthly figures is subject to the individual circumstances of the parties, and their subject lease.

Formal agreements should be put in place to ensure that the lease and their terms are not disturbed outside of the matters agreed, and that there is sufficient flexibility for both the landlord and the tenant for the duration of the Relevant Period.

Individual circumstances will vary, and the above information is provided as a general summary of the legislation only. This information should not be taken as legal advice, and formal advice should be sought based on specific lease documents.