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Victoria’s Commercial Tenants Relief Scheme – 15 April 2020 – Update

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Victoria’s Commercial Tenants’ Relief Scheme – Update – 15 April 2020

This is what we have been waiting for, but will it assist the Government’s desire that parties negotiate reasonably, fairly and in good faith?

Robert Toth, Partner at MMRB, has been publishing updates over the last few weeks to assist clients and advisors with practical advice, rather than regurgitating the Government’s announcements which are readily available online by media and other firms.

Announced yesterday and commencing from 29 March 2020 the Victorian State Government relief package expected to be passed by legislation on 23 April 2020 mirrors the Federal Government’s Mandatory Code applying the same thresholds:

  • Business annual turnover under $50 million with a minimum 30 per cent reduction in turnover due to COVID-19;
  • A 6-month moratorium on evictions for the non-payment of rent;
  • A freeze on rent increases during the 6-month period;
  • A rental payment waiver or deferral proportionate to the tenants’ reduction in turnover from COVID19, to be negotiated between the tenant and landlord;
  • Mediation via the VSBC to support fair tenancy negotiations.

What’s new with the State Government announcement?

Land tax relief $420 million discounts by a 25% discount to Land Tax payable by Landowners and deferring existing Land tax payments to March 2021 to commercial or industrial landlords that provide rent relief to their tenants.

The land tax relief also applies to residential landlords who provide rent relief to eligible tenants with a further $80 million package to residential tenants.

Will this immediately assist the parties? Rob has his doubts that offering Land Tax relief will be the catalyst for Landlords to start negotiating reasonably.

Some smaller Landlords pay little to no Land Tax.

This does not give any direct financial support to commercial tenants which I think is a missing piece in the relief package.

What this means is Landlords and tenants are back to the negotiating table and it is likely the VSBC mediation service will be swamped with requests beyond their capacity.

Solutions are better than disputes

It is a case by case situation every lease and landlord /tenant circumstance is different.

We are finding some landlords and their agents taking a fair and supportive view of the tenant’s position and other are not. On the other hand, some tenants have unreasonable and unrealistic expectations.

Our job as Lawyers is to provide advice but also sensibly advise our clients whether landlord or tenant and find a commercial solution that both parties can live with even if unhappily in the short term.

We need to use the Edward De Bono philosophy of thinking outside the square!

A real case example:

Tenant operates a childcare centre on a long-term lease.

Landlord has a mortgage but is comfortably geared.

After open discussions and the Landlord looking at its cash flow position and obligations to their Bank and the tenant’s reduction in turnover it was agreed to assist the Tenants cash flow concerns over the next quarter that the tenant pay:

  • 50% of the rent for the next quarter with the balance deferred.
  • 100% of the rent (subject to review if necessary, at that time) for the following quarter.
  • 100% rent for the following quarter with the 50% initially deferred payable over 6 months.

This formula has been used as a template to initiate discussions with a Tenant on behalf of a number of Landlords now the principle being if you have rescued turnover that causes a short term cash flow crisis then lets arrive at a formula that addresses that issue but over the long term maintains the rent payable under the lease.

Points to consider in the negotiation process:

  • The Lease terms continue to operate between the parties, so Landlords and Tenants first step is to read their lease;
  • Communicate early and try to reach an agreement;
  • Negotiation does not mean one party making a once and only, take it or leave it proposal, that is not acting in good faith nor is it negotiation;
  • It may take some time that is days or weeks and a number of discussions or zoom meetings before agreeing to an outcome;
  • Tenants should not put an unrealistic proposal to the Landlord, if they can pay some part of the rent and keep the doors open satisfying the criteria, they should put that as an offer;
  • Likewise, Landlords should not dig their heels in taking the view they have greater power and leverage;
  • Ensure you put proposals in writing and confirm discussions with landlords’ agents the Landlord in writing.

Contact the VSBC at enquiries@vsbc.vic.gov.au or call 13 8722 if agreement cannot be reached or you consider the other party is acting unreasonably and against the Code principles.

CONTACT:
Robert Toth | Partner | Accredited Commercial Law and Franchise Specialist | robert@mmrb.com.au | www.marshmaher.com.au | 0412 673 757
Kristen Vassilopoulos | Lawyer | kristen@mmrb.com.au | 9604 9400

Disclaimer: This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.

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