On 20 August 2020 the Premier announced that the Victorian COVID-19 rent relief scheme for retail and commercial leases (which was to expire on 29 September 2020) would be extended to 31 December 2020. Enabling legislation was given royal assent on 22 September 2020 and on 29 September 2020 the existing regulations (we will refer to them as the “previous regulations”) were amended by the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendment Regulations 2020 (Vic). We will refer to them as the “new regulations”. While the changes are loosely described as extending the existing scheme, there are some important differences and key rights and obligations, that both landlords and tenants should be aware of.
The new regulations are not retrospective and only cover the period from 30 September to 31 December 2020 (the Extension Period).
The previous regulations continue to apply in relation to the period from 29 March to 29 September 2020.
It’s worth noting that the enabling legislation does not expire until 26 April 2021 which gives the government the ability to further extend the scheme up to that date, if it considered this necessary.
Under the previous regulations a tenant, in order to be eligible, must have been an “employer”, which had the effect that sole traders were excluded from the scheme. Under the new regulations tenants who are not “employers” will be eligible for relief during the Extension Period, providing those tenants meet the other criteria, including being entitled to JobKeeper payments.
To be eligible for JobKeeper payments, businesses and not-for-profit organisations need to demonstrate that they have experienced a decline in turnover of:
- 50% for those with an aggregated turnover of more than $1 billion;
- 30% for those with an aggregated turnover of $1 billion or less; or
- 15% for Australian charities and not-for-profits.
Some protections are also afforded to tenants who cease to be entities entitled to JobKeeper payments after 29 September 2020 and consequently fall out of the definition of “eligible lease” under the new regulations.
While tenants that fall into this category cannot make new applications for rent relief, they are still entitled to concessions for outgoings and protections against rent increases during the Extension Period. Further, if a tenant makes an application for rent relief under the new regulations and subsequently becomes ineligible for JobKeeper payments before the application is resolved, it is nevertheless considered an “eligible lease” under the new regulations.
For more information on JobKeeper eligibility requirements, please visit the ATO’s website here.
Rent relief must now be proportional to the tenant’s decline in turnover
The previous regulations made reference to a number of criteria to be taken into account by a landlord in determining its offer of rent relief, one of which was the financial position of the landlord. As signalled by the Premier when he made his announcement on 20 August 2020, the new regulations now require the rent relief, during the Extension Period, to be in direct proportion to the tenant’s decline in turnover from the relevant premises. The landlord’s financial situation is not a relevant consideration for determining the relief in the Extension Period.
The structure of relief for the Extension Period remains the same – at least 50% of the relief granted must we waived by the landlord and the remainder deferred for a minimum period of 24 months. For example, if a tenant’s turnover has declined by 90%, the landlord is required to waive 45%, another 45% will be deferred and the tenant must pay 10%.
As a result of this change of emphasis, the new regulations go into some detail in relation to how decline in turnover is calculated and what documents can be produced to evidence this decline.
Process for requesting and determining rent relief during the Extension Period.
As with the previous regulations, the process is commenced by the tenant making a written request for relief. The landlord must then make a rent relief offer within 14 days (unless a different time frame is agreed between the parties in writing), following which the parties must negotiate in good faith and endeavour to agree on a relief package.
An important difference with the new regulations is that a tenant is only entitled to relief from the date from the date it gives the landlord a written request accompanied by the by the information and materials required under the regulations. It is therefore vitally important for tenants to make this written request as soon as possible.
The new regulations are much more specific than the previous regulations, in relation to the information and material to be included with the tenant’s request for rent relief. We summarise below the requirements under the new regulations:
- the tenant must include a statement to the effect that the lease is an eligible lease and is not otherwise excluded by the new regulations, and must set out the tenant’s decline in turnover that is associated only with the premises (discussed below);
- the tenant must provide information that evidences the tenant is an SME entity and is entitled to JobKeeper payments; and
- the tenant must include information that provides evidence of the tenant’s stated decline in turnover (which must be stated as a percentage), including at least one of the following:
- extracts from the tenant’s accounting records;
- the tenant’s BAS;
- statements issued by an ADI (i.e. a bank) in respect of the tenant’s account; or
- a statement prepared by a practicing accountant.
On receipt of a written request which includes all this information a landlord has sufficient information to satisfy itself that the tenant is eligible for relief under the scheme, and to calculate the amount of rent relief to be offered, based on the tenant’s decline in turnover.
The Victorian Small Business Commission provides helpful guidance on this step, including an example form of written request. For more information on the process and to access the example form of written request, visit the VSBC website here.
Calculating the decline in turnover
As mentioned above, the new regulations make it clear that decline in turnover must be calculated only by reference to the decline in turnover associated with the premises under the lease. If a tenant operates from more than one premises it will need to separate its turnover figures for the premises in question. It seems likely that on-line sales, where a customer attends the particular premises to “click and collect”, would be included in the turnover for those premises.
In calculating the decline in turnover for the purpose of calculating the rent relief, the new regulations adopt the actual decline in turnover test outlined by the Australian Tax Office, which you can view here.
This process allows the use of a “basic test” to determine the decline in turnover or, where that test is not suitable for the relevant circumstances, a number of “alternative test” options are available.
The “basic test” requires the tenant to estimate its turnover from the date it requested rent relief until 31 December 2020. It must then compare this estimate to the corresponding period in 2019 to determine the percentage change.
There are a number of alternative tests that can be used where the basic test would not be appropriate in the circumstances. By way of example, if a tenant’s turnover is not cyclical, it must use the tenant’s average monthly current GST turnover as a comparison, calculated in accordance with the details set out by the Australian Tax Office.
We emphasise that the necessary materials and calculations must be supplied with the written request for rent relief. If they are not provided, or are insufficient or defective, it may be that the written request does not satisfy the requirements of the regulations and accordingly the tenant may not be entitled to rent relief until the full and correct information is provided to the landlord.
Can a relief agreement made under the previous regulations be revisited?
The intention of the new regulations is to enable tenants to obtain, during the Extension Period only, rent relief that is directly proportional to their decline in turnover. The new regulations are not retrospective and do not allow for adjustment of rent relief already agreed under the previous regulations.
However, where a rent relief agreement entered into under the previous regulations covers a period extending beyond 29 September 2020, the new regulations allow a tenant to request a variation so that the rent relief under that agreement, for any time that falls within the Extension Period, is in direct proportion to its decline in turnover. Any such request must be made in accordance with the process set out in the new regulations, including the provision of evidence of decline in turnover as set out above.
Timing will also be important here, as the entitlement to adjustment of the existing rent relief may only apply form the date the formal request is made.
Dispute resolution process
As foreshadowed in the Premier’s announcement on 20 August 2020, the dispute process in the new regulations does enable a tenant, in limited circumstances, to seek a binding order from the Victorian Small Business Commission, to resolve a dispute regarding rent relief. This only applies to disputes with respect to rent relief during the Extension Period, and disputes already in progress under the previous regulations will continue according to the procedures outlined in those regulations.
If a binding order is made, a landlord or a tenant may apply for the order to be amended or revoked. Either party also has a right to apply to VCAT for a review of a binding order, or any amendment or revocation of a binding order, or of a decision by VSBC not to make a binding order or not to amend or revoke a binding order.
However, given the far more prescriptive nature of the new regulations, in terms of calculating the rent relief in direct proportion to decline in turnover, its seems likely the need for dispute resolution or determination regarding rent relief during the Extension Period will be much reduced.
Moratoriums against rent increases and evictions
The moratoriums against rent increases and evictions relating to rent payments continue until 31 December 2020. The moratorium has been extended to include evictions for non-payment of outgoings.
Importantly, the moratorium only applies if the tenant is complying with the process for seeking rent relief under the regulations, including good faith negotiations, and where a rent relief agreement has been entered into, only while the tenant is complying with that agreement. It’s possible that a tenant who delays in making a written request for rent relief could lose the benefit of the moratorium, although there is some uncertainty here since the new regulations do not specify a timeframe for making that request.
Our Property Group can provide advice and assistance on all issues concerning the Covid-19 rent relief scheme in Victoria, including the significant changes to rights and processes under the new regulations.
~ with Christian Mennilli, Graduate at Law.
This article is intended to provide general information only. It is not an exhaustive or accurate summary of the law, nor is it intended as legal advice and cannot be relied upon as such. Please seek legal advice specific to your circumstances should you require assistance.