So, it’s time to take stock, review your leasing agreements, and determine if:
- there are claims for rent relief that have not been agreed between the parties to the lease;
- there are rent reviews that would otherwise have taken place during the emergency period that can be initiated by a landlord as soon as the emergency period ends;
- default and termination processes can be commenced as a result of tenant default; or
- there are agreements in relation to rent relief, deferral of rent or extensions of the term that need to be documented.
Unresolved claims for rent relief
There is a time imperative for the parties to a lease reaching an agreement in relation to any claim for rent relief.
Tenants have the right to apply to the State Administrative Tribunal (SAT) or make a request of the Small Business Development Corporation (SBDC) to seek resolution to a dispute in relation to rent relief. However, if application to the SAT or referral to the SBDC has not been made by the end of the emergency period, the SAT and the SBDC will no longer have jurisdiction to hear and determine disputes of this nature.
If an agreement is not reached before the end of the emergency period in relation to a request for rent relief, the tenant should take alternative steps toenforce its rights before the end of the emergency period as the right to referany dispute to the SAT or the SBDC under the COVID Legislationwill be lost atthe expiry of the emergency period.
Once the emergency period ends, so too does the prohibition on rental increases under small commercial leases.
Landlords should review the rent review provisions of their leases as, depending on the drafting of the clauses, rent reviews that fell due during the emergency period may be able to be initiated from 28 March 2021.
Just because a rent review fell due during the emergency period does not necessarily mean that it has been waived or is now unenforceable.
Default and termination
Similarly, once the emergency period ends, so too does the prohibition on taking action to terminate a small commercial lease. In fact, landlords are again at liberty to take any of the “prohibited actions” set out in the COVID Legislation, including:
- enforcing an eviction;
- exercising a right of re-entry; or
- making a damages claim.
While it is obviously untested, our position is that landlords may now, before the end of the emergency period, prepare and serve notices purporting to terminate leases if defaults are not remedied, provided that the date on which the lease will terminate falls after 28 March 2021.
Deed of variation and/or extension of lease
Most importantly, now is the time to document (by way of a deed) any arrangements or agreements reached by the parties to a lease during the emergency period relating to rent relief, deferral of rent or the extension of the term.
The extent and amount of any rent relief and/or rent deferral will now be crystallised and, with the monetary amounts known, the variations to the terms of the lease can be drafted with clarity.
It has been our experience that, while some landlords are formally varying leases by way of a deed of variation (and, where necessary, a deed of extension), the majority of the agreements dealing with rent relief and deferral of rent have been evidenced by way of exchange of correspondence.
While this is preferable to not being documented at all, there are issues that can arise in relation to the enforceability of letter agreements, such as:
- The lease itself may contain a clause stating that the lease can only be varied by a deed signed by both parties. Therefore, a letter agreement may not be an effective method of varying the lease.
- The lease is also likely to contain an “entire agreements” clause which will state that the lease is the entire agreement between the parties in relation to the premises, which calls into question the status of the letter agreement.
- A letter agreement could be deemed to be a personal agreement between the landlord and the tenant, rather than part of the lease. If the lease is assigned, the letter agreement would not automatically flow to an assignee on the assignment of the lease. A deed of variation and/or extension of lease, if properly drafted, will be supplemental to the lease and will form part of the lease which is assigned.
We suggest that deeds of variation and/or extension of lease be entered into and, where possible, registered at Landgate. This will overcome problems associated with letter agreements that are forgotten or not adequately dealt with (particularly in instances where leases are assigned).
Please contact Lavan’s Property and Leasing team if you have any queries about the COVID Legislation and its application, or if you would like assistance in relation to taking action to enforce a right to rent relief or in documenting variations and/or extensions to your leases.