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Leases Update: Omnibus Bill – Regulations Still to Come

Giancarlo Romano
Adam Pincus
Article by Giancarlo Romano & Adam Pincus

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The Victorian Parliament passed the COVID-19 Omnibus (Emergency Measures) Bill 2020 (Bill) on 23 April 2020 which temporarily amends various Acts to respond to the current challenges arising from the Covid-19 pandemic.

We had hoped as noted in our earlier updates regarding commercial leases, that the Bill would legislate and provide more clarity around the National Cabinet Mandatory Code of Conduct (“the Code”). Apart from further clarifying some of the eligibility criteria however, the Bill is largely procedural and does not offer much further explanation on how the principles of the Code are to be applied or enforced.

It does however empower the Governors to make regulations on those issues that may have retrospective effect to as early as 29 March 2020 so we expect that such regulations will follow soon.

Eligibility Criteria for Protection Under the Code

The Bill specifies that an ‘eligible lease’ must have all of the following characteristics:

  1. it must be in effect on the date the regulations come into operation (which will likely be retrospectively from 29 March 2020);
  2. where the tenant is BOTH:
    1. a Small to Medium Enterprise (SME) entity which is now defined as an entity that had less than $50m in turnover in either or both of the previous or current financial year (per rule 5 of the Guarantee of Lending to SME Rules (Cth) 2020),
      AND
    2. an Employer who qualifies for and participates in the Commonwealth Jobkeeper scheme.
      (NB: Emphasis added here as the Code only required tenants to be ‘eligible’ for the scheme, whereas the Bill now specifies that the tenant must actually participate in the Jobkeeper scheme to be eligible for protection)

The Bill exempts those tenants who are ‘members of a prescribed group of entities’ or who have a ‘relationship or connection with another entity’ with an aggregate turnover exceeding the prescribed amount ($50million annually) in line with the Code’s reference to franchise or retail corporate groups.

Procedural Amendments – Formal Regulations Still to Come

Apart from these definitions and a little more clarity on eligibility however, the Bill offers little clarification on how the principles of the Code are to be applied or enforced.

Section 15 simply empowers the Governor in Council, on the recommendation of the Minister for Small Business, to make regulations to implement the principles set out in the Code. Once these regulations are made they will allow the Governor to (amongst other things):

  1. Prohibit termination of eligible (protected) leases;
  2. Change any relevant time periods in leases (eg. 14 day default notice period);
  3. Modify or limit rights under a lease or the operation of a lease or any other agreement related to such eligible leases;
  4. Exempt a landlord or tenant from certain obligations under their leases or ancillary agreements;
  5. Extend the period during which an eligible lease is in effect; and
  6. Prescribe that landlords and tenants in dispute over their lease must negotiate or attend mediation with the Small Business Commission to resolve their conflict or obtain a certificate for this before applying to VCAT for determination of a dispute.

They also have the power to potentially impost a penalty of up to $3,300 for a contravention of the regulations and to empower the Small Business Commission to monitor compliance or commence proceedings for breaches of the regulations.

The relevant part of the Bill amending these lease provision will automatically be repealed six months after it has commenced. Based on such timeline, one can only hope that some sort of normality could return before the end of the year.

We will continue to provide updates as soon as the substantive regulations affecting the conduct and management of commercial leases are codified.

Giancarlo Romano

Principal Lawyer
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Adam Pincus

Lawyer
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