On 24 August 2021, the Commercial Tenancy Relief Scheme Regulations were brought into effect. The purpose of these Regulations, (along with the Commercial Tenancy Relief Scheme Act) is to provide rent relief for eligible businesses who have experienced a loss in turnover of more than 30 per cent due to the COVID-19 pandemic, (similar to the commercial rent relief regulations that operated from March 2020 to March 2021).
The Scheme has retrospective effect from 28 July 2021 and will be in operation until 15 January 2022.
Features of the Scheme
The key features of the Scheme are:
- Landlords required to provide rent relief for eligible businesses
- Rent relief to be in line with the decline in tenant’s turnover
- Rent relief can take the form of a rent waiver, reduction, remission or deferral
- Tenant must have experienced “a serious trading downturn” (more than 30%) due to the COVID-19 pandemic
- Evictions for not paying rent will be banned (if circumstances fall within the Scheme)
- A freeze on rent increases until 15 January 2022 for eligible tenants
- If a tenant who is eligible under the new scheme has deferred rent under the first COVID rent relief scheme, the existing rent deferral will be frozen at the option of the tenant until 15 January 2022 and added to rent deferred under the new Scheme (if any)
- Either party can apply for mediation with the Victorian Small Business Commission
- Reductions in 3rd party fees/charges must be passed on by landlords or reimbursed
- Landlords must consider waiving recovery of any outgoings or other expenses payable by the tenant for any part of the protection period where the tenant is not able to operate their business at the premises
Who does this apply to?
It applies to an ‘Eligible Lease’ with an ‘Eligible Tenant’ that satisfies the ‘Decline in Turnover Test’. (See below for definitions of these terms).
Eligibility will be determined through a one-time test.
It is important to note that if a tenant was eligible under the previous scheme, a new request for rent relief must be made to the landlord, and the tenant must be eligible under the new scheme.
How does a Tenant get relief?
Tenants’ requests for rent relief must be in writing and accompanied by a statement (which must comply with the specific requirements of the Regulations).
Within 14 days of making a request, the tenant must provide information to the landlord that evidences the turnover figures contained in the statement.
If a tenant does not provide this information within 14 days after making the request, the request for rent relief lapses. However, the tenant may make a new request for rent relief. It is important to note that if a tenant allows 3 requests to lapse, they cannot make a further request.
Offer by Landlord
A landlord must offer rent relief under an eligible lease within 14 days after receiving the evidence required or a different time frame as agreed between the landlord and the tenant in writing.
The landlords offer must:
- be in writing and at a minimum, be proportional to the tenant’s decline in turnover
- provide that no less than 50% of the rent relief offered by the landlord must be in the form of a waiver of rent (this is unless a landlord and tenant agree otherwise in writing)
If, after 14 days after the tenant has received the landlords offer of rent relief:
- The landlord and the tenant have not agreed on a rent relief agreement; and
- The tenant has not referred the matter to the Small Business Commission; and
- The landlord’s offer of rent relief complies with the minimum requirements
then the tenant is deemed to have accepted the landlords offer and a rent relief agreement is deemed to have been made accordingly.
Rent relief may be given by a variation to the lease or any other agreement that gives effect to the rent relief.
What period will the relief apply to?
The rent relief period depends on the date which the tenant makes the rent relief request and is determined as follows:
- If the request for rent relief is made on or before 30 September 2021, the rent relief period will be 28 July 2021 – 15 January 2022;
- If the request for rent relief is made after 30 September 2021, the rent relief period will be from the date of the request until 15 January 2022.
It is important to note that if payment of any rent is deferred by a rent relief agreement, an extension to the term of the lease must be offered by the landlord to the tenant, equivalent to the period for which rent is deferred, unless agreed otherwise.
How will rent relief be calculated?
Turnover decline will be calculated by reference to the comparison turnover and turnover test period and is dependent on when the tenant started trading. Special arrangements will apply for business that were not operating in Q4 of the 2018/2019 financial year, tenants who received Drought Help concessions, and tenants who qualified for the ATO’s Bushfires 2019-20 lodgement and payment deferrals.
The Victorian Small Business Commission sets out a table which outlines the Turnover Test Period and Comparison Turnover [see the table at comparison and turnover periods table]
If the rent relief request was made on or before 30 September 2021 and the tenant began trading before 1 April 2021, at 31 October 2021 there is a mandatory reassessment of rent relief.
The key elements of this are:
- Tenants must provide, in writing, the specified reassessment information
- It must be provided by 31 October 2021
- If the tenant does not provide the above information by 31 October 2021, the tenant’s rent relief agreement no longer applies to the extent that it relates to any waiver of rent only from the reassessment date
Benefits to Landlords
On 5 August 2021, a $120 million package for landlords was announced (for landlords who provide relief to eligible tenants). The package is comprised of a $20 million Commercial Landlord Hardship Fund and $100 million to support land tax relief of up to 25% for landlords who support their tenants.
An ‘Eligible Lease’ is a retail lease or a non-retail commercial lease or licence:
- That was in effect on 28 July 2021;
- Under which the tenant is an ‘eligible tenant’; and
- Does not fall under any exclusion within the Regulations.
An ‘Eligible Tenant’ is a tenant that:
- Is a small or medium sized business (SME) entity with an annual (2020/21) turnover of less than $50 million;
The Decline in Turnover Test is satisfied if:
- there has been a decline in turnover of at least 30% due to COVID-19
- At least 30% lower than its Comparison Turnover
The definition of ‘Turnover’ is varied to exclude federal government grants and includes state government COVID grants and any turnover derived from Internet sales of goods and services – this differs from last years Relief Scheme.
Commercial landlords and tenants should consider conducting rent relief negotiations as soon as possible. It is recommended that any agreements are documented.
Whether you are a landlord or a tenant, please do not hesitate to contact us if you have any questions regarding the Scheme or if you require assistance formalising rent reduction agreements.