In brief - On 24 August 2021, the Victorian Government introduced regulations to accompany their new legislation which provides for a reintroduction of the Commercial Tenancy Relief Scheme.
The Commercial Tenancy Relief Scheme will enable eligible tenants to claim rent relief from their landlords if they have suffered a decline in their turnover of at least 30% over the relevant turnover test period.
Following the passing of the Commercial Tenancy Relief Scheme Act 2021 on 3 August 2021, the Commercial Tenancy Relief Scheme Regulations (the Regulations) were brought into force in Victoria on 24 August 2021 but have retrospective effect from 28 July 2021.
In this article, we will discuss the impact of the Regulations and their effect on commercial landlords and tenants.
1. An eligible tenant under an eligible lease may request rent relief from its landlord for the period 28 July 2021 and 15 January 2022 if they have suffered a decline in turnover at least equal to 30% (15 % for an ACNC-registered charity).
2. The tenant's turnover is calculated based on all turnover (not just turnover relating to the relevant premises) and excludes any Commonwealth COVID-19 grants and financial assistance. For the purposes of the comparison, most eligible tenants who began trading before 1 April 2019 may compare their turnover from any three consecutive months between 1 April and 30 September 2021 to their turnover in the same three months in 2019 in order to calculate whether they have satisfied the decline in turnover test.
3. A tenant must now provide the information to support its relief request within 14 days of making the request. This includes a statutory declaration from the tenant or authorised officer of the tenant stating that the tenant is eligible under the Scheme and the information provided is true to the best of the tenant's knowledge. If the tenant fails to provide the required information within 14 days of making its relief request, the tenant's request lapses. If the tenant allows three requests to lapse, the tenant is no longer eligible for rent relief.
4. A tenant will be afforded similar protections with respect to the non-payment of rent or outgoings as under the 2020 Scheme's operation (no eviction, re-entry or claiming of security) except for the following important changes:
a tenant must now continue to pay the portion of the rent equal to the rent due under the lease reduced by applying the tenant's claimed decline in turnover in order to be protected;
the tenant must pay the rent and outgoings due under any rent relief agreement made in order to be protected; and
the tenant has an additional protection for circumstances where the tenant is unable to trade due to sickness, injury or natural disaster (which term is not defined and may extend to include the COVID-19 pandemic). In this event, the tenant is not in breach for failure to pay rent or outgoings even if the tenant has not made a rent relief request.
5. A landlord must offer rent relief in writing within 14 days of receiving the rent relief request and the required evidence, which must:
be, at a minimum, proportional to the decline in the tenant's turnover;
be at least 50% in the form of a waiver of rent; and
consider 'any other circumstances' that the tenant may set out in their rent relief request.
6. If the parties have not made a rent relief agreement within 15 days of the tenant receiving the landlord's offer, the tenant will be deemed to have accepted the landlord's offer if the offer was compliant with the Scheme and the tenant has not applied for mediation by the Small Business Commission.
7. Failure to make a request for rent relief (compliant with the requirements under the Scheme) before 30 September 2021 will affect the tenant's ability to seek rent relief for the period 28 July 2021 to 30 September 2021. Any rent relief request made after 30 September 2021 will only apply to the period from the date of the compliant request to 15 January 2022.
8. There will be a mandatory reassessment of rent relief agreements prior to 31 October 2021 where the tenant's rent relief request was made prior to 30 September 2021, and the tenant commenced trade prior to 1 April 2021. If the reassessed turnover differs from the initial change in turnover, then from 31 October 2021 the agreement will be deemed to be adjusted to reflect this change for the remainder of the rent relief period. If the tenant fails to provide the information required for the reassessment by 31 October 2021, then the rent relief agreement no longer applies from the reassessment date in respect of any rent waived.
9. Similar to the 2020 Scheme, a landlord under an eligible lease must not increase the rent payable under the lease between 28 July 2021 and 15 January 2022 (the Protection Period). This applies regardless of whether an agreement for rent relief has been requested. However, as distinguished from the 2020 Scheme, the Regulations now provide that if an eligible lease called for a review of rent in the Protection Period that would result in an increase, the review is void and may not be postponed or frozen.
10. If rent was deferred by an agreement made under the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licenses) Regulations 2020 and that lease remains on foot or is a renewal, extension or replacement of that lease, the payment of the deferred rent is again deferred until the end of the protection period (currently 15 January 2022).
Eligibility for the Commercial Tenancy Relief Scheme
What is an eligible lease?
An eligible lease is a retail lease or non-retail commercial lease or licence:
which, whether new, renewed, varied or extended, is in effect on 28 July 2021; and
under which the tenant is an eligible tenant under the Scheme; and
which is not excluded from the Scheme (such as leases where the tenant is a listed corporation or agricultural leases).
Who is an eligible tenant?
An eligible tenant under the Scheme:
is a small business entity (SME) with a turnover of less than $50 million in 2020/21 financial year;
carried on a business in Australia as at 28 July 2021 (or was a non-profit body or deductible gift recipient);
satisfies the 'Decline in Turnover Test' (the Test); and
is not otherwise excluded from the Scheme.
Decline in Turnover Test
The Test will be satisfied if the tenant can demonstrate a reduction in turnover of at least 30% (15% for ACNC-registered charities) when comparing between its turnover in a consecutive three-month period between April and September 2019 (as chosen by the tenant) and the corresponding period in 2021.
Turnover will be calculated in a very similar fashion to GST turnover, with a variation to include state government COVID grants but exclude Commonwealth government grants or assistance. It will also include all turnover of the tenant regardless of whether it is connected with the premises, including online sales which differs from the Scheme's operation last year. However, special rules will be available to tenants who received drought help concessions or 2019/20 bushfire relief.
How to apply for rent relief as an eligible tenant
First, an eligible tenant must request rent relief in writing accompanied by a statement from the tenant confirming their eligibility under the Scheme and confirmation that they satisfy the Test. In this application, the tenant has liberty to include additional information that they wish for the landlord to take into consideration when making the offer of rent relief. The tenant must continue to pay the portion of the rent equal to the rent due under the lease reduced by applying the tenant's claimed decline in turnover.
Within 14 days of making the rent relief request, the tenant must provide evidence that evidences the tenant's turnover figures in its rent relief request. This evidence includes at least one of the following:
extracts from the tenant's accounting records;
the tenant's business activity statements;
statements issued by ADI in respect of the tenant's account; or
a statement prepared by a practising accountant.
It must also include a statutory declaration made by the tenant (or its authorised officer) that the tenant is eligible, and that the information provided is true and correct. If the tenant does not provide these documents within 14 days of the rent relief request, the request will lapse. If the tenant allows three rent relief requests to lapse they will lose their entitlement to seek rent relief.
Offer of rent relief
Within 14 days of receiving the supplementary evidence of the tenant's satisfaction of the Test, the landlord must make an offer of rent relief in writing. This offer must:
(at a minimum) be proportional to the tenant's decline in turnover;
provide that no less than 50% of the rent relief is in the form of a waiver of rent unless otherwise agreed;
take into account the part payments of rent and any other circumstances which the tenant has highlighted in their request. At present, there is no requirement for the landlord to give weight to the circumstances beyond a mere consideration.
Good faith negotiations
Tenants and landlords must cooperate and act reasonably and in good faith in relation to the Scheme generally and negotiate in good faith with a view to agreeing rent relief to apply during the Protection Period.
If an agreement is not reached within 14 days of an offer complaint with the Scheme being made by the landlord, and the tenant has not referred the issue to the VSBC for mediation then the tenant is deemed to have accepted the landlord's offer.
The VSBC will have the same powers to make a binding order on the parties as they did during the Scheme's operation in 2020.
Stay tuned for further updates.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2021.