What do you need to know as COVID-19 measures for commercial and residential tenancies come to an end in Victoria?

15 March 2021

Publications

In March 2020 when the COVID-19 pandemic hit in Australia, the Commonwealth, State and Territory Governments introduced a range of emergency measures to assist landlords and tenants who may have been impacted by the economic effects of this pandemic. With the end of COVID-19 relief imminent in most Australian jurisdictions, commercial and residential landlords and tenants should note the key date to ensure you are continuing to comply with COVID-19 measures and prepare for any financial exposures after relief measures expire.

The Commonwealths temporary insolvency relief measures expired on 31 December 2020 and JobKeeper employee payment support will expire on 31 March 2021.

In Victoria, the rent relief measures will expire on 28 March 2021 thereafter it will be back to business as usual for landlords and tenants. Leases can again be terminated, renewed and rents increased. However, other things like repayment arrangements or deferral arrangements will remain in place beyond the end of the emergency period.

It is important to note that if the tenant has made an application for rent relief and that application is not resolved before 28 March 2021 then pursuant to the provisions Regulations 9 and 11 of the Covid-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 you are unable to terminate a lease during the relevant period for non-payment of rental during the rent relief period.

Both landlords and tenants should be aware of what options are available to landlords after 28 March 2021 if non-residential tenants have unpaid rental and have not submitted their application for rent relief or are ineligible for rent relief.

Landlords Options post 28 March 2021 

Aside from calling on any security or guarantees given in connection with a lease, and subject to the terms of the lease, a Landlord generally has 3 options where monetary amounts are owing under the lease:-

  1. Issue a default notice under section 146 of the Property Law Act 1958 (Vic) in accordance with the terms of the lease agreement (assuming the intention is to induce the tenant to pay the outstanding amounts rather than to immediately terminate the lease for non-payment of rent only);
  2. Issue proceedings out of a court in Victoria for the outstanding debt; and
  3. Issue a statutory demand against the company in relation to its outstanding debt.

Default notice

If the tenant has not submitted their application for rent relief during the relevant period and they have not paid any rental and outgoings, you may want to consider issuing a default notice under section 146 of the Property Law Act 1958 (Vic) against the tenant based upon their non-payment of rental and outgoings in accordance with the terms of the lease agreement (assuming the intention is to induce the tenant to pay the outstanding amounts rather than to immediately terminate the lease for non-payment of rent only).

The default notice would give the tenant a period of time to pay the amount outstanding, failing which the lease is terminated. The tenant has the right to apply for relief against forfeiture of the lease by paying or securing payment of the outstanding amount owed (including any interest and costs). Where the lease is terminated the Landlord has the right to issue proceedings to recover the amount of rental outstanding up to the date of termination and damages associated with the costs of reletting the premises.

Issue Proceedings for Debt

Whether or not the landlord terminates the lease, the landlord can sue the tenant for the amount outstanding (including any interest and costs).

In addition, after making demand the same proceedings can be brought against any guarantor to the lease.

This is a formal recovery approach where an assessment of costs and time taken in prosecuting the claim may impact a landlord’s decision whether to pursue this approach.

Statutory demand

This option applies where the tenant or guarantor is a company.  A statutory demand is a formal written demand served on a company by a creditor (Landlord) pursuant to section 459E of the Corporations Act 2001 (the Act). A company has 21 days to respond to the statutory demand otherwise it is presumed to be insolvent pursuant to section 459C(2)(a) of the Act and based upon that deemed insolvency the landlord  may apply to have the company wound up pursuant to section 459P of the Act.

It is important to note that the debtor (Tenant) can apply to set aside the statutory demand however they must show that they have a genuine dispute with the landlord as to the amount that is owed.  An example of such a dispute may be a dispute in relation to liability for repair costs and the tenant is seeking to offset costs incurred by them against rental payable.

Should you require any further information please do not hesitate to contact a member of our National Property Team.

Authors

Neil Hannan | Partner | +61 3 8080 3589 | nhannan@tglaw.com.au

Betty Chen | Lawyer | +61 3 8080 3765 | bchen@tglaw.com.au