What a relief! VCAT takes a broad view of COVID-19 rent relief requirements: R & D Health Clubs v Lin Wang

By Alicia Hill, Principal and Lee Filkin, Law Clerk

In R & D Health Clubs Pty Ltd v Lin Wang Pty Ltd (Building and Property) [2021] VCAT 349, the Victorian Civil and Administrative Appeals Tribunal (VCAT) considered whether a tenant’s initial request for rent relief can be carried over to subsequent periods or whether a fresh application must be made. VCAT also considered whether COVID-19 rent relief payments are to be included within the definition of ‘outgoings’.

Background

R & D Health Clubs (Tenant) operated a 24-hour gymnasium known as ‘Snap Fitness Burwood’ (Business) at retail premises leased from Lin Wang (Landlord).

On 22 March 2020, the Tenant was forced to close the Business due to COVID-19 restrictions imposed by the State Government.

These restrictions were lifted on 20 June 2020, allowing the Tenant to reopen the Business on 21 June 2020; however, the reimposition of restrictions on 6 July 2020 again forced the Tenant to close the Business until 8 November 2020.

On 19 May 2020, the Tenant requested a waiver of all rental expenses and associated outgoings ‘from March 2020 until such time as the gym is allowed to reopen’ (Request).

The parties were not able to reach agreement as to what rent relief should be given.

After an unsuccessful mediation, the Tenant filed proceedings with VCAT in late August 2020.

Relevant issues

In the VCAT proceedings before Deputy President E Riegler, the following issues were identified in relation to the Request:

  1. whether the Tenant is entitled to claim rent relief for the period after 29 September 2020, in circumstances where no request for rent relief was given to the Landlord relating to the second relevant period; and
  2. whether a coronavirus economic response payment is to be taken into account in assessing any decline in turnover.

Riegler DP found that there were some anomalies with regard to whether the tenant had complied with regulation 10 of the COVID-10 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations) in its application for rent relief.

However, both parties had proceeded on the basis that the Tenant’s application was valid; the Landlord had even put forth an offer for rent relief to the Tenant. Although this offer was rejected by the Tenant, it demonstrated that it was uncontroversial between the parties that the Tenant’s application for rent relief was valid.

In spite of any regulatory anomalies inherent within the Request, Riegler DP found that the Tenant’s Request was made in accordance with regulation 10 of the Regulations (at para [14]).

The parties were granted leave to provide further submissions regarding the recent decision of Yarraville Business Pty Ltd v Persico (Building and Property) [2021] VCAT 213 (Yarraville), which also considered whether a fresh request for rent relief was required, although in a modified context.

In Yarraville, the Tribunal held that the tenant’s right to protection against eviction under regulation 9 of the Regulations crystallised upon it having made a compliant request for rent relief; it was held that this right survived notwithstanding amendments made to the Regulations.

Riegler DP applied this decision to the context of this case in considering whether the Request, made during the first relevant period, could survive into the second and third relevant periods.

The Landlord argued that a Request made in the original period could not apply to either of the subsequent periods, because the regulatory regime applicable to the later periods was amended and, critically, there was no request made in either of the subsequent periods, only the first. However, Riegler DP held that a request for rent relief made in the initial period survives into subsequent periods.

In coming to this decision, Riegler DP had regard to the underlying purpose of the amended Regulations, finding that the primary objective of the amendment was to ‘extend the scheme’ (at para [48]). It was not accepted that the amendments mandated a re-application or ‘fresh request’ (at para [49]) by tenants who had validly entered the rent relief scheme under a previous period.

Riegler DP also confirmed that COVID-19 relief payments are not to be included in the definition of ‘outgoings’ in accordance with the Regulations.

In the judgement it was suggested that payments attributable to supply ought to be included within the scope of ‘outgoings’; insurance payments can be included within the definition on this basis, but COVID-19 payments lack sufficient connection to supply, and accordingly fall outside the definitional scope.

Conclusion

This case demonstrates that rent relief requests can be carried between relevant relief periods without new applications being made; beyond this however, it demonstrates a willingness on the part of the courts/ tribunals to interpret the COVID-19 Regulations on a broad basis.

This case provides vital guidance for interpretation of the Regulations which, absent any agreement between the parties, will form the basis upon which rent relief will be granted.

If you have any queries, please contact Alicia Hill on (03) 8540 0292 or alicia.hill@mst.com.au