The Revised Commercial Tenancy Relief Scheme Regulations
The revised Commercial Tenancy Relief Scheme Regulations 2021 (Vic) (Regulations) introduces temporary measures for retail and commercial landlords and tenants in response to the COVID-19 pandemic.
The Regulations are complex, with critical time limits for both tenants and landlords. The Regulations can also alter existing rent relief agreement.
The Regulations apply from 28 July 2021 until 15 January 2022.
Critical timing
An eligible tenant can seek relief for the Protection Period if it makes a written request for relief and provides all supporting documentation to its landlord on or before 30 September 2021. If the tenant fails to do this, relief will only commence from the date of the tenant’s request. Missing the 30 September deadline by just one day means that a landlord is not required to give any relief for the first 9 weeks of the Protection Period.
Eligibility
A tenant must be an eligible tenant under an eligible lease. Essentially, an eligible tenant is a tenant that:
is an SME entity with a turnover of less than $50 million,
as at 28 July 2021, has been carrying on business, and
satisfies the decline in turnover test.
A lease is an eligible lease if it is a retail or non-retail commercial lease or licence to an eligible tenant that was in effect on 28 July 2021 (or is a renewal, variation or extension of such a lease). Significantly, leases under which the tenant is a listed corporation or a subsidiary of a listed corporation are not eligible.
Decline in turnover test
A tenant will satisfy the decline in turnover test if its Turnover for the Turnover Test Period is at least 30% lower than its Comparison Turnover.
How the parties determine the relevant Turnover Test Period will depend on the day that the tenant commenced trading, and there are a number of alternate tests that can be used to determine Comparison Turnover.
Step 1 - Determine turnover test period
|
The tenant began trading |
Turnover test period |
|---|---|
|
Before 1 April 2021 |
Any consecutive 3 month period between 1 April 2021 and 30 September 2021. |
|
After 1 April 2021 |
A turnover test period agreed between the tenant and the landlord negotiated in good faith. |
Step 2 - Determine the comparison period
|
The tenant began trading |
Comparison turnover period |
|---|---|
|
Before 1 April 2019 |
The 3 month period in 2019 that corresponds with the turnover test period. |
|
1 April 2019 to 31 March 2020 |
Average 3 monthly turnover |
|
1 April 2020 to 31 March 2021 |
Average 3 monthly turnover |
|
1 April 2021 to now |
Average 3 months based on average daily turnover |
In a significant departure from the first scheme, this scheme now now includes all turnover of the tenant, not just turnover from the premises under the eligible lease, as well as online sales, but does not include any Commonwealth COVID-19 related grants or financial assistance that a tenant has received.
The process
A new 2-stage process requires a tenant to make an initial request for relief and subsequently provide further information. Everything must reach the landlord by 30 September 2021 if a tenant is to secure its right to relief from 28 July 2021.
The initial written request must be accompanied by a statement by the tenant confirming it is an eligible tenant and has satisfied the decline in turnover test and must detail how the decline in turnover has been calculated. The tenant may also state any other circumstances that it would like the landlord to take in to account when considering the relief request.
Within 14 days after making its initial request the tenant must provide further prescribed information to evidence the turnover figures it has stated, including a statutory declaration attesting to its eligibility and the truth of its supporting information.
It is worth noting that if a tenant does not provide the further information with 14 days of making its initial request, that request will lapse and the tenant must then make a new one. A tenant can make up to 3 requests but will then be barred from making further requests for rent relief under this revised scheme.
Rent relief period
If a tenant makes compliant rent relief request on or before 30 September 2021, the rent relief period is back-dated to 28 July 2021.
If the compliant rent relief request with the required evidence is made after 30 September 2021, the rent relief period starts from the date of the compliant rent relief request.
The rent relief period ends on 15 January 2022.
The Landlord's offer
A landlord relief offer to the tenant must be made within 14 days of the landlord receiving a fully compliant request. The offer must:
be at least proportionate to the tenant’s decline in turnover,
contain a waiver of rent comprising no less than 50% of the offered rent relief (the remaining balance of rent relief can be comprised of rent deferral),
take into account the other circumstances put forward by the tenant in its request,
relate to the relief period, which is, if the tenant makes its request and provides all supporting information:
on or before 30 September 2021, the Protection Period, or
after 30 September 2021, the date of the tenant’s request to 15 January 2022,
not require any deferred rent to be paid before 15 January 2022. Deferred rent must be payable in equal monthly instalments over the greater of 2 years or the remainder of the term of the lease,
if any deferral of rent is offered by the landlord, include an offer by the landlord to extend the term of the lease by an extension equivalent to the period for payment of the deferred rent.
Deemed acceptance
After the tenant receives the landlord’s offer, unless the parties either:
agree on the rent relief; or
refer the dispute to the Victorian Small Business Commission (VSBC);
then 14 days after receiving the landlord’s offer, the tenant is deemed to have accepted the landlord offer.
Mandatory reassessment
Landlords will be relieved to see that a new mandatory reassessment test has been incorporated into the new scheme that will afford them some protection in cases where a tenant’s turnover has increased after it initially satisfied the decline in turnover test. The relief granted will be reassessed by taking into account changes in a tenant’s actual turnover if:
the tenant made its request on or before 30 September 2021, and
the tenant was trading before 1 April 2021.
An affected tenant must provide further prescribed turnover information to its landlord before 31 October 2021 and a failure to provide the requisite information by this date means that, in most cases, the tenant’s rent relief agreement will no longer apply to the extent that it relates to any waiver of rent from 31 October 2021.
Existing rent relief arrangements
If the landlord and tenant had previously agreed to defer rent under previous rent relief regulations (2020 Deferred Rent), then if the tenant makes a compliant rent relief request, the 2020 Deferred Rent is further deferred until after 15 January 2022.
Once payments resume, the payments must be in the same instalments and frequency as agreed on in 2020.
Restriction on rent increases
A landlord cannot apply rent increase under an eligible lease during the period from 28 July 2021 to 15 January 2022 (Protection Period).
The Regulations provide that rent increases are voided during the Protection Period and will not apply at the end of the Protection Period. This includes fixed increases and CPI increase. Problematically, it is currently unclear whether this also applies to market rent reviews which result in a rent increase.
No enforcement action
For the Protection Period, a Landlord cannot take enforcement action (or draw on lease security) for non-payment of rent or outgoings against a tenant who make an eligible rent relief request and continues to pay a proportion the rent (in line with the tenant’s decline in turnover).
Dispute resolution
The landlord or tenant can continue to refer any dispute arising under the Regulations to the VSBC. Given the new deemed acceptance regulation, we expect this will lead to an increase in disputes referred to the VSBC.
Let’s Talk
Should you have any queries in relation to eligibility for the Revised Commercial Tenancy Relief Scheme, please contact us on + 61 3 9527 5041.