The 2022 Commercial Tenancy Relief Scheme Regulations
The 2022 Regulations operate from 16 January 2022, providing measures for rent relief in Victoria between 16 January 2022 and 15 March 2022.
Given that the 2022 Regulations are a new piece of legislation, as opposed to an extension of the 2021 Regulations, eligible tenants must submit a fresh request to access protection between 16 January – 15 March 2022.
Eligibility
A key change between the 2021 and 2022 Regulations is eligibility.
The 2022 Regulations will apply to leases in effect on 16 January 2022. This means that any new leases that have come into effect since 29 July 2021 that were not eligible under the 2021 regulations will now have recourse to relief.
Further, an eligible tenant must be a ‘small entity’ with a turnover of less than $10,000,000 in the 2020/2021 financial year. This is a substantial reduction from $50,000,000 under the previous regulations.
Decline in turn-over test
As has been the case previously, tenants will need to demonstrate a decline in turnover of at least 30%.
For the majority of leases, the Turnover Test Period is now January 2022 and the Comparison Period is January 2020. Therefore, tenants will be required to demonstrate that their turnover in January 2022 was 30% lower than it was in January 2020.
However, the tenant can also elect to compare its December 2021 turnover against its January 2020 turnover if:
during January 2022, a tenant's business 'temporarily ceased trading for a week or more due to an event or circumstances outside the ordinary course of the tenant's business; and
the tenant's business resumed trading before 16 January 2022.
The tenant does not have to specify what event or circumstances caused it to temporarily cease trading. This has the potential to be interpreted very broadly.
For newer tenants who began trading on or after 1 January 2020, the comparison turnover is its average monthly turnover — calculated by taking the sum of the tenant’s turnover for each whole month after it commenced trading up to 31 January 2022, and divided by the number of whole months of trade.
Under this approach, a new tenant, only three months into its lease term, with strong turnover in November and December 2021 and a decline in January 2022 would potentially satisfy the decline in turnover test and be eligible for rent relief.
The alternative comparison options for specific circumstances remain available.
Relief request process and timeframes
The request process and applicable timeframes otherwise remain unchanged from the 2021 regulations.
The tenant must again provide evidence of its turnover figures and a statutory declaration within 14 days of the rent relief request. If the tenant fails to do so, then the rent relief request lapses.
Unlike before, the lapsing of the tenant’s rent relief required does not reduce the rent relief period. The rent relief period has a fixed start date of 16 January 2021.
A tenant would have to allow 3 requests for rent relief to lapse before losing its right to request rent relief.
What must the landlord offer?
Unchanged from the 2021 Regulations, the landlord must offer rent relief within 14 days of receiving the rent relief request, evidence of turnover and the statutory declaration, unless otherwise agreed.
Again, the landlord’s offer must be proportional to the decline in turnover and provide that no less than 50% of the rent relief offers be in the form of a waiver of rent unless otherwise agreed.
Tenant’s deemed acceptance still applies
If, 15 days after receiving the landlord’s offer of rent relief:
there is no rent relief agreement;
the tenant has not referred the matter to the Small Business Commission; and
the landlord’s offer comply with the minimum requirements for a landlord offer;
then the tenant is deemed to have accepted the offer.
Deferred rent
Unless otherwise agreed, any deferred rent is repayable over the greater of:
the balance of the lease term; and
24 months.
So long as the tenant makes a rent relief request under the 2022 Regulations, any existing obligation to repay deferred rent under previous rent relief agreements made under the 2020 or 2021 Regulations is postponed until 15 March 2022.
Prohibition on rent increases
A landlord must not increase the rent payable under the eligible lease between 16 January and 15 March 2022 (Protection Period).
If during the Protection Period, the lease specifies a date for a rent increase or a review of the rent payable that would increase the rent, then that review is voided and may never be claimed.
This captures fixed increases, and potentially market rent reviews (especially if subject to a ratchet clause).
Does the tenant have to pay any rent or outgoings?
For the Protection Period, the tenant is not in breach of a requirement to pay rent or outgoings if, before a rent relief agreement is made:
the tenant has made a request for rent relief;
the rent relief request has not lapsed; and
the tenant continues to pay an amount equal to the rent, less the percentage of the tenant’s decline in turnover.
Limitations on enforcement action (including drawing on lease security) continue to apply. The VSBC continues to offer mediation.
Let’s Talk
Should you have any queries in relation to eligibility for the 2022 Commercial Tenancy Relief Scheme, please contact us on + 61 3 9527 5041.