Last week the Victorian Government made a further announcement regarding the Victorian Commercial Tenancy Rent Relief (CTRS) post-Lockdown 5.0 and introduced legislation into Parliament in relation to the new CTRS that has now been passed being the Commercial Tenancy Relief Scheme Act 2021 (the Act).
Please see below our update regarding the announcement last week and the Act:
Victorian Government Announcement
A summary of the announcement (which we assume will be reflected and refined by further Regulations now the Act is in force) is as follows and we have identified where the CTRS reflects and departs from the first CTRS:
| Similar to first CTRS | Departure from first CTRS |
|---|---|
| Tenants will be eligible for the scheme if the drop in turnover is greater than 30%*; (*nb – this is largely reflective of the threshold to obtain JobKeeper under the first CTRS, which is no longer in operation). | Eligibility for the scheme will be a one-time test. Businesses which are eligible at the beginning of the scheme will remain eligible throughout |
| Rent relief for eligible tenants will be calculated by comparing their turnover for the final quarter of the 2020/21 financial year with turnover from the final quarter of 2018/19* (*nb – this was the format in which some parties calculated the turnover in the first CTRS, however if reflected in the legislation for the new CTRS this will provide further guidance to landlords and tenants regarding the calculation of turnover) | Special arrangements will be in place to assess the turnover impacts for new businesses which were not operating in 2019 |
| The proportion of rent relief adjusted in line with their turnover | For eligible applications under the new scheme, where there is also an agreement already in place from the first CTRS, existing deferred rent repayment requirements will be frozen until 15 January 2022, when the outstanding amount will be added to the deferred rent accrued during the current Scheme |
| The Victorian Government will provide landlords with land tax relief of up to 25 per cent | Small landlords who can demonstrate acute hardship will be eligible to apply for payments as part of a $20 million hardship fund* (*nb – there are no further details regarding how small landlords will be eligible for this fund) |
| Landlords and tenants are encouraged to start negotiating as soon as possible. | Landlords can’t issue an eviction notice for eligible tenants without obtaining a direction from the Victorian Small Business Commission. |
As there are no Regulations currently in place, elements of the new CTRS Scheme will need to be reviewed prior to documentation being entered into or negotiations being finalised between landlords and tenants.
We confirm that this new CTRS will be applicable from 28 July 2021 and will be available to tenants with a turnover of less than $50 million.
Some initial comments regarding the announcement are:
- the type of evidence that tenants will need to supply their landlord as evidence of their turnover is not contemplated. We assume this will be addressed in the Regulations (yet to be published) and will largely reflect the first CTRS (i.e. statement endorsed by accountants etc); and
- although the announcement allows for landlords to apply for payments from the $20 million hardship fund, there is no guidance from the Government about how landlords will be able to apply for these payments and how they are to demonstrate their “acute hardship”.
Until further Regulations are passed (expected in a couple of weeks’ time), there are still a few further unknowns and we will be posting further once the Regulations are passed.
A copy of the Victorian Government’s announcement is available here: https://www.premier.vic.gov.au/rent-relief-way-commercial-tenants
The Act
There are a few key points to take from the Act as follows:
- The Act has retrospective effect from 28 July 2021 onwards;
- The Act allows the Minister for Small Business to have the ability to make regulations of a broad nature including:
- Prohibiting termination of a lease;
- Changing or limiting rights of a landlord under a lease;
- Exempting parties to a lease from complying with the lease;
- Extending or altering COVID-19 rental agreements under the first CTRS; and
- Many other potential regulations that would substantially effect the lease and the position of both parties to the lease.
- The legislation allows for a monetary penalty of any contravention of the Regulations;
- The Act will be in place until 30 April 2022 and any regulations made under the Act can be in force until 30 October 2022.
Will my lease be effected?
At this stage an eligible lease under the new CTRS is “a retail lease or non-retail commercial lease or licence that is prescribed”. Importantly there is no date requirement under the Act that will effect eligibility of the lease, unlike the first CTRS that required leases to be on foot prior to 29 March 2020.
A copy of the Act can be viewed here. https://www.legislation.vic.gov.au/in-force/acts/commercial-tenancy-relief-scheme-act-2021/001
We will provide a further post once the Regulations are passed which will ultimately determine how landlords and tenants are to proceed with rent relief negotiations and agreement under the new CTRS.
If you are a commercial or retail landlord or tenant, please contact us if you require further advice or information on 03 9592 3356, office@citypacific.com.au or complete the contact form here: https://businesslawyersmelbourne.com.au/contact/
