The Commercial Tenancy Relief Scheme Regulations 2021 (Scheme) was released by the Victorian Government on 24 August 2021. It is similar to the 2020 scheme (old scheme) but has some key differences and it is complex.
The complexity comes with understanding and navigating through the detailed definitions, tests and requirements. If tenants don’t make compliant requests, they could miss weeks of rent relief or totally miss out. All parties face tight timeframes and potential financial penalties if they are in breach.
For simplicity, we will refer to “leases”, “tenants” and “landlords” in this article. Keep in mind that the Scheme does apply to licences and sub leases/licences.
When does it start and finish?
The Scheme runs from 28 July 2021 to 15 January 2022 (protection period).
What does it apply to?
It applies to eligible leases. An eligible lease is a retail or commercial lease:
• that was in effect on 28 July 2021;
• with an eligible tenant; and
• that is not excluded (e.g. an agricultural type leases are ineligible).
An eligible tenant is a tenant that:
• is an SME (i.e. its turnover is less than $50 million);
• carried on business in Australia as at 28 July 2021;
• satisfies the decline in turnover test; and
• is not excluded (e.g. in liquidation, foreign government of an Australian Government agency).
What is the decline in turnover test?
This is where things start to get interesting. The Scheme applies different tests depending on when the tenant started trading. There are also a number of alternative comparison tests that tenants can use. These are similar to the various eligibility tests for JobKeeper.
At a high level, the test is satisfied if the tenant’s decline in turnover is more than 30%. This is calculated by comparing the turnover test period against the comparison turnover.
For example, tenants who were trading before 1 April 2019 can pick from any three (3) consecutive months between 1 April 2021 and 30 September 2021. This is then compared to the corresponding months in 2019.
Note, turnover now includes internet sales and COVID-19 Victorian Government grants and financial assistance. Commonwealth financial assistance are not included.
The Victorian Small Business Commission (VSBC) has provided useful resources to help both tenants and landlords navigate the Scheme. Click here for more details on the tests, easy to understand tables, steps and FAQs provided by the VSBC.
How does a tenant get rent relief?
The tenant needs to:
• make a written request
• stating the tenant is an eligible tenant and satisfies the decline in turnover test
• set out all the calculations for the tests
• detail any other circumstances the tenant would like the landlord to consider (if any)
• provide evidence of turnover
• provide a statutory declaration stating that the tenant is an eligible tenant and that the information provided is true
The landlord then makes an offer to the tenant (see below). However, the emphasis is on the tenant to react to the landlord’s offer. If the tenant is not happy with the offer, it needs to negotiate quickly. The offer will be deemed accepted unless the tenant refers the matter to the VSBC for mediation within 14 days of the offer. If in doubt, the tenant should apply to the VSBC well before this deadline.
What evidence does the tenant need to provide? When?
To prove turnover, the Tenant needs to provide at least one of the following:
• Extracts from the tenant’s accounting records
• The tenant’s business activity statement(s)
• Bank Statements
• A statement prepared by a practising accountant
The evidence must be provided within 14 days of the written request – it is even better if it is provided at the same time. If not, the request lapses. Up to 3 lapses are allowed, after that, the Tenant loses the right to get rent relief.
What does the landlord have to do?
Once the landlord has the tenant’s written request and evidence, the landlord has 14 days to make an offer. The landlord must offer, at a minimum:
• rent relief for the rent relief period
• rent relief in proportion to the decline in turnover
• with at least half in waiver and half in deferral
• an offer to extend the lease term
What is the rent relief period? How long does it go for?
This depends on when the compliant written request and evidence was provided.
If provided on or before 30 September 2021, the rent relief period will run from 28 July 2021 to 15 January 2022.
If after 30 September 2021, then the rent relief period will run from the date it is provided until 15 January 2022.
What are some other key points of the Scheme?
• There is an overarching obligation on the landlord and tenant to co-operate, act reasonably and in good faith.
• Financial penalties apply for providing false or misleading information, to landlords that wrongly try to evict a tenant or re-enter premises.
• The rent relief must be reassessed on 31 October 2021. This is required if a compliant written request was made on or before 30 September 2021, an agreement was reached and the tenant started trading before 1 April 2021. The tenant has to provide information similar to the request. If there is a difference, the rent relief agreement will be deemed to be adjusted for the remainder of the rent relief period.
• A tenant can reapply for rent relief if there is a material change in circumstances.
• Deferred rent under the Scheme is to be paid after 15 January 2022.
• Deferred rent under the old scheme is also paused until after 15 January 2022.
• Any rent review increases that fall within the protection period are voided.
• A tenant is protected from eviction for failing to pay rent as long as it has made a compliant request and pays rent proportional to the tenant’s decline in turnover or agreement reached.
• There are similar dispute resolution requirements and processes to the old scheme.
This article can only brush over the complex and detailed Scheme. Landlords and tenants are strongly encouraged to get specific advice or take the time to understand their obligations and requirements.
If you need advice or have questions, please call us on 1300 55 88 03.