COVID-19 Lease variation: Who pays the legal costs?
Can the Landlord (or their agent) ask a tenant to pay its legal costs for preparing a Deed of variation of the lease if an agreement is reached arising from a tenant’s request for rent relief under the COVID-19 regulations?
This is coming up in practise with the COVID-19 Leasing changes and there have been differing views.
1. The Retail Leases Act 2003 (Vic)
Section 51 - is the starting point and provides a Landlord may not charge a tenant legal and other expenses for negotiation, preparation or execution of the Lease, obtaining the consent of a mortgagee or the landlord's compliance with the Act.
Entering into a new lease means the Landlord cannot recover its legal costs and each party pays their own costs
However, Landlords can claim their reasonable legal or other expenses in relation to an assignment of the lease or a sub-lease, and investigating a proposed assignee or sub-tenant and obtaining any necessary consents to the assignment or sub-lease.
Therefore, if its arises out of an assignment the landlord can claim its costs
What about varying the lease under the new COVID-19 Regulations?
At first thought it would seem the Landlord can ask the tenant to cover its legal costs for preparing the deed of variation where a negotiated agreement has been reached as a result of a request for relief under the Code, but is that correct ?
We asked the SBC and they have confirmed that in their view if the parties reach an agreement regarding COVID-19 rent relief, generally speaking (SBC words), each party will be responsible for their own legal costs.
Why? They state that as the Victorian Regulations for a Commercial Tenancy Relief Scheme (the Scheme) do not ask ( read nor require) the parties to formalise the agreement by a deed of variation and do not address this issue, who is responsible for the legal cost is up to the parties’ negotiation.
So, there you have it the party that seeks to formalise the agreement must pay its own costs.
Robert Toth / Accredited Commercial and Franchise Law Specialist
Robert@mmrb.com.au Ph: 0412 67 37 57
Wollermann Franchise Developments