UPDATE – Victorian Commercial Tenancy Rent Relief Regulations – Are you eligible?

This update is in addition to our recent blogs about the Victorian Commercial Tenancy Rent Relief (CTRS). See below links to our previous updates:

• https://businesslawyersmelbourne.com.au/new-covid-commercial-tenancy-rent-relief-scheme-has-been-announced-after-victorian-lockdown-5-0/
• https://businesslawyersmelbourne.com.au/update-victorian-commercial-tenancy-rent-relief-post-lockdown-5-0/

Earlier this week, the Victorian Government released the Commercial Tenancy Relief Scheme Regulations 2021 (the Regulations).

The Regulations are 74 pages long and are complicated.

Here’s a summary:

Eligibility

To be eligible under the Regulations, there needs to be an eligible lease and an eligible tenant:-

• Eligible Lease – is a lease:
  • that was in effect from 28 July 2021 (and importantly includes any renewals, variations or extensions of lease after 28 July 2021); and
  • that has an eligible tenant; and
  • is not an excluded lease (i.e. an agricultural lease or a lease where the tenant is a listed corporation or a subsidiary of a listed corporation)
• Eligible Tenant – an eligible tenant is:
  • an entity that carries on a business in Australia or is an Australian not-for-profit and is an SME entity (with an annual turnover of less than $5 million); and
  • is not subject to any exclusions in the Regulations (i.e. companies in liquidation etc); and
  • satisfies the Decline in Turnover Test (see below).

Decline in Turnover Test

A tenant will need to show a decline in Turnover during the tenant’s Turnover Test Period of 30% from the tenant’s Comparison Turnover.

• Turnover – similar to the 2020 CTRS, turnover is defined in the same way as GST turnover. However, the Regulations specifically:
  • allow state government COVID grants to be included in turnover;
  • exclude Commonwealth grants; and
  • importantly internet and online sales will be included in turnover (unlike the 2020 CTRS Regulations which restricted turnover to turnover from the premises associated with the lease).
• Turnover Test Period – will depend on when the tenant began trading:
  1. If the tenant began trading before 1 April 2021, the tenant can elect a consecutive 3 month period between 1 April 2021 – 30 September 2021 (commencing on the first day of a month);
  2. If the tenant began trading after 1 April 2021, then the tenant and landlord must negotiate in good faith regarding an agreed upon turnover test period;
  3. If the tenant began trading before 1 April 2021 and previously made a rent relief request before 30 September 2021 and entered into a rent relief agreement with the landlord, then the turnover test period is the quarter ending on 30 September 2021.
• Comparison Test Period – also depends on when the tenant began trading:
  1. If the tenant began trading before April 2019, the comparison period is the same 3 months in 2019 elected by the tenant for the Turnover Test Period;
  2. If the tenant began trading between 1 April 2019 – 31 March 2020, the comparison period is a calculation of a three-month average ending on 31 March 2020 (being the sum of the tenant’s turnover for each whole month of trade to 31 March 2020, divided by the number of the whole months multiplied by 3);
  3. If the tenant began trading between 1 April 2020 – 31 March 2021, the comparison period is a calculation of a three-month average ending on 31 March 2021 (being the sum of the tenant’s turnover for each whole month of trade to 31 July 2021, divided by the number of the whole months multiplied by 3);
  4. If the tenant began trading after 31 March 2021, the comparison period is a calculation being tenant’s turnover from the date it commenced trading to 31 July 2021, divided by the number of days the tenant was trading and multiplied by 92);
  5. If the tenant began trading:
     • before 1 July 2019 and previously made a rent relief request before 30 September 2021 and entered into a rent relief agreement with the landlord, then the comparison test period is the quarter ending on 30 September 2019;
     • between 1 July 2019 and 31 March 2021 and previously made a rent relief request before 30 September 2021 and entered into a rent relief agreement with the landlord, then the comparison test period is the quarter ending on 30 June 2021.

There are other regulations that deal with:

• sole traders with sickness, injury or leave;
• the effect of purchases, sales or restructures of the business;
• any bushfire relief or drought help concessions claimed by the business, and
• other factors,

that may change the general position above. If any of these apply to you, please contact our office for further information.

Rent Relief Requests

Similarly, to the 2020 CTRS Regulations, landlords and tenants must cooperate and act in good faith in all discussions and actions when attending to requests for rent relief.

An eligible tenant of an eligible lease may make a request for rent relief by:

• making a written request for rent relief, including a statement from the tenant that it is:
  • an eligible tenant; and
  • satisfies the decline over test (addressing the detail of the turnover test period, comparison period and the relevant decline in turnover;) and
  • the reduction in rent that would satisfy the minimum reduction in rent the landlord would be required to provide under the Regulations (see below); and
  • any other circumstances.

Supporting Evidence

The supporting evidence that the tenant must provide as part of their rent relief application is similar to the 2020 CTRS Regulations but there are changes to the 2020 CTRS Regulations as follows:-

• The tenant can now provide the supporting evidence within 14 days of the initial request for rent relief;
• The tenant is required to provide a Statutory Declaration the supporting information provided is correct;
• If the tenant fails to provide the supporting evidence within 14 days of the initial request for rent relief the request for rent relief will lapse and the tenant will need to re-apply to the landlord for rent relief; and
• If the tenant lets 3 requests for rent relief lapse, then they will no longer have the ability to seek rent relief.

Landlord’s Response

Similar to the 2020 CTRS Regulations, the landlord must within 14 days of receiving the supporting evidence from the tenant make an offer of rent relief in writing that must:

• provides rent relief at a minimum that is proportional to the tenant’s decline in turnover,
  • with 50% of the rent relief to be in the form a rent relief waiver; and
  • the balance of any rent to be deferred (deferred rent is to be applied in equal instalments commencing no earlier than 15 January 2022 and runs for the 2 years or the balance of the term of the lease (whichever is greater)); and
• takes into account:
  • any part payments of rent made before a rent relief agreement is reached (at a reduced rate on the basis of the tenant’s decline in turnover as set out in the tenant’s request for rent relief (see further details below)); and
  • any other circumstances raised by the tenant. However, there is no requirements under the relation to how much the landlord need to take any other circumstances into consideration.
• applies to the relevant “rent relief period”:
  • if the tenant makes the application (including providing the supporting evidence) before 30 September 2021 the rent relief period will be 28 July 2021 – 15 January 2022;
  • if the tenant makes the application (including providing the supporting evidence) after 30 September 2021 the rent relief period will be from the date of the tenant’s request – 15 January 2022.
• Similar to the 2020 CTRS Regulations, if the landlord offers deferred rent as part of the rent relief, then the landlord must also offer an extension of the term of the lease equivalent to the period that the rent is deferred.

Further, it is an offence under the Regulations for either the landlord or the tenant to provide misleading or false information during any rent relief negotiations.

Reaching an agreement

A big difference from the 2020 CTRS Regulations is that the tenant can be deemed to have accepted the landlord’s offer for rent relief, if:

• An agreement between the parties is not reached within 14 days of the landlord’s offer; and
• If the landlord’s offer meets the minimum rent relief requirements; and
• The tenant has not referred the matter to the VSBC for assistance.

Prohibitions and Protections under the Regulations

Landlord Prohibitions

Similar to the 2020 CTRS Regulations, a landlord cannot:

• increase the rent payable under an eligible lease between 28 July 2021 – 15 January 2022;
• evict a tenant or attempt to re-enter the premises because of non-payment of rent.

However, in a departure from the 2020 CTRS Regulations, if there is a rent review date that falls during the 28 July 2021 – 15 January 2022 then this review can be voided and may never be claimed by the landlord in the future. This is will be significant for any leases that have annual or market rent reviews due during this period.

Tenant Protections

Similar to the 2020 CTRS Regulations a tenant will not be in breach of the lease if it does not pay rent and outgoings but will only be able to rely on this regulation if:

• The tenant has made a rent relief request under the Regulations that has not lapsed (this is the same as the 2020 CTRS Regulations);

and

the tenant continues to pay rent, reduced by the tenant’s stated decline in turnover (this is different to the 2020 CTRS Regulations and prevents tenants from ceasing to pay rent altogether);

• If a rent relief agreement is reached the tenant pays the amounts required by the rental relief agreement;
• If if the tenant is unable to trade as a result of sickness or injury affecting the tenant, its officers or employees or as a result of a natural disaster (i.e. a tenant will be protected under the regulations for non-payment of rent for these scenarios even if the tenant has not made an application for rent relief – this is also a significant departure from the 2020 CTRS Regulations)

Further, in a departure from the 2020 CTRS Regulations, a Tenant will not be in breach of the eligible lease if it reduces it opening hours or if it ceases the business at the premises. This protection applies to eligible leases even if the decline in turnover test is not satisfied by the tenant.

 

If you are a commercial or retail landlord or tenant, please contact us if you require assistance with making or assessing a rent relief application under the Regulations or if you need further advice or information. We are available during the current lockdown as follows:

• Telephone: 03 9592 3356
• Email: office@citypacific.com.au
• or complete our contact form here:  https://businesslawyersmelbourne.com.au/contact/