As one of the measures to assist businesses impacted by the latest COVID-19 lockdowns, the Victorian Government announced on 28 July 2021 the reinstatement of the Commercial Tenancy Relief Scheme for commercial and retail tenants.
On 24 August 2021 regulations were issued containing details in relation to the scheme and its operation, referred to as the Commercial Tenancy Relief Scheme Regulations 2021 (Vic) (Regulations). The reinstated scheme largely reflects what landlords and tenants have seen in previous iterations, with some notable exceptions. A summary of the key elements of the scheme is provided below.
The new Regulations are considerably more complex than for the previous scheme. Landlords and tenants should review the Regulations carefully and obtain accounting and legal advice as necessary. The Small Business Commissioner also provides helpful explanations and guidance on its website.
Details of the Scheme:
Protection period
Eligible tenants are entitled to rent relief, as well as other protections, for the period 28 July through to 15 January next year, regardless of what lockdowns or restrictions apply during that period.
Eligibility
Tenants must have annual turnover across all their entities and operations of less than $50m, and be able to demonstrate a decline in turnover of 30% or more (15% for certain not-for-profit entities). Listed corporations (and subsidiaries) are not eligible, nor are premises which are predominantly used for agricultural purposes.
Rent relief
As a minimum, an eligible tenant is entitled to a reduction in rent in proportion to its decline in turnover, and of that reduced amount, half is waived by the landlord and the other half is deferred (to be paid at a later time).
Request for relief
A tenant seeking relief must make a written request to its landlord, including the particulars specified in the Regulations. These include a statement that it is eligible, the details of its decline in turnover and how it is calculated, and other circumstances it wishes the landlord to consider.
The Regulations are very specific about what information must be supplied and when.
Importantly, the relief will be backdated to 28 July only if the request is made by 30 September. If it is made after that date then the relief is only available from the date the request is made.
If a request is made but the supporting information is not provided within the required time, the request will lapse. A tenant can make up to three requests, and if the third request lapses it will not be entitled to make any more requests.
We also point out the following:
- after making a request for rent relief, and until the final details of the rent relief are agreed or resolved, the tenant should pay rent based in the minimum entitlement under the Regulations (ie reduced in the same proportion as its decline in turnover);
- a tenant will also lose the benefit of other protections under the Regulations if it fails to make a request or allows its request to lapse, or if having made a request, fails to pay interim rent based on the minimum entitlement; and
- it is now an offence for a tenant to provide false and misleading information in connection with its decline in turnover, or anything else under the Regulations.
Decline in turnover
In order to show the necessary decline in turnover, a tenant must be able to measure its current turnover against a comparable baseline period which was not impacted by COVID-19. The Regulations allow for a number of different alternative baseline periods to be selected, depending on the tenant’s situation, and also allow for special circumstances to be taken into account, which may otherwise distort the turnover comparison, such as irregular turnover, sickness or injury or the impact of drought or other natural disasters.
Tenants must select the appropriate alternative and provide supporting information.
There is a mandatory requirement for re-assessment of the turnover calculations as at 31 October 2021. If, upon re-assessment, it is found that the minimum decline in turnover requirement is not met, the tenant will cease to be entitled to further rent relief and other protections under the Regulations.
Finalising the rent relief
The landlord must respond within 14 days of receiving the tenant’s request and supporting evidence, and make an offer of relief. It must be at least the relief required under the Regulations, but it can be more. The parties must then negotiate in good faith.
If the parties do not reach agreement within 14 days, or refer the matter for mediation, then the landlord’s offer is deemed to be accepted.
Deferred rent
Payment of the deferred rent cannot commence until 16 January 2022, or a later time if agreed.
The landlord must offer to extend the lease by the same period as the period for which the rent is deferred.
Unless otherwise agreed, the deferred rent is to be repaid by equal instalments over the period which is the longer of 24 months or the remaining term of the lease (including any extension granted as above).
Postponement of prior deferred rent
Many tenants will have existing deferred rent obligations arising from previous rent relief arrangements. These obligations are frozen during the new protection period and will recommence on 16 January 2022 (or later if agreed with the landlord) with the payment period for those prior amounts pushed out accordingly. This could result in some overlap between the period for payment of prior deferred rent and the period for payment of deferred rent under the new scheme.
Dispute resolution
The Victorian Small Business Commission will continue to provide a mediation service for disputes, and if mediation fails, the tenant will be able to seek a binding order in some circumstances.
Each party continues to have the right to issue proceedings at VCAT to resolve disputes, or in the case of the tenant, to enforce a binding order made by the Victorian Small Business Commission.
Moratorium on evictions
The new scheme prevents landlords terminating leases, or using any security bond or bank guarantee provided by the tenant, for failure to pay rent and outgoings during the protected period, if the tenant has made a request for relief (and that request has not lapsed) and in the meantime the tenant is paying rent according to the minimum relief under the Regulations (based on its decline in turnover).
In addition, this moratorium also applies if the tenant is unable to trade due to sickness or injury, or the impact of natural disasters.
However landlords are not prevented from taking such action as a result of other defaults, including rental arears arising prior to 28 July (except prior deferred rent which is frozen as discussed above) or a failure by the tenant to pay reduced rent in accordance with a rent relief agreement made under the new scheme.
Other protections
The new scheme also extends other protections from previous schemes, including a moratorium on evictions (discussed above), flexibility for the tenant to reduce its trading hours and reductions in outgoings payments proportional to any discounts the landlord receives from relevant authorities.
In addition, the new scheme provides for a cancellation of rent reviews that would otherwise have become due during the protection period, meaning those reviews are lost and cannot be applied later. This is a significant difference from previous schemes which only provided for deferral of those reviews.
Assistance for landlords
The principles for COVID-19 rent relief which were first announced by the Prime Minister in April 2020, reflected the lofty ideals of a sharing of the impact and burden of the pandemic between landlords and tenants, based on good faith negotiations. Since then different iterations of the scheme have evolved to provide for a more prescriptive and certain regime for rent relief and protections for tenants, with little support for land owners.
The Victorian Government has announced the return of a $20 million hardship fund for landlords who provide rental relief to their tenants during this period.
If you are a tenant or landlord seeking assistance in this area, please contact the Property Group at Hunt & Hunt.
~ with Alexandra Culshaw, Graduate at Law
