New COVID-19 Commercial Tenancy Relief Scheme

The Commercial Tenancy Relief Scheme Regulations 2021 (Regulations) were introduced by the Victorian Government on 24 August 2021 aimed at providing further rent relief for Commercial Tenants as a result of the ongoing COVID-19 pandemic. A copy of the Regulations can be found HERE.

The Regulations will apply retrospectively for the period of 28 July 2021 to 15 January 2022 (Relevant Period).

As per the previous rent relief scheme introduced in 2020, the Regulations are aimed to assist small and medium size businesses with an annual turnover of less than $50 million, who can demonstrate a loss in turnover of more than 30 per cent. There are however, a number of key differences in the way the Regulations are now being applied for this Relevant Period;

Eligible Lease & Tenant

The Regulations will only apply to an Eligible Lease meaning;

• a lease that was in effect on 28 July 2021

• a lease not subject to any exclusions listed in the Regulations (eg. Agricultural leases or listed corporations)

To qualify as an eligible Tenant, a Tenant must;

• be a Small or Medium entity (with turnover in 2020/21 of less than $50m);

• have, as at 28 July 2021, carried on business;

• satisfy the Decline in Turnover Test

Decline in Turnover Test

The decline in turnover test will be satisfied if the Tenant can demonstrate a minimum of 30% decline in turnover compared to their comparison turnover.  The below table will assist Tenants in determining a turnover test period and turnover test comparison period;

Where the tenant’s business has changed over the last 2 years, the Regulations include various other alternative tests that can be applied by the tenant, such as where there has been an acquisition of another business or a business restructure.

Process for obtaining rent relief

The process for obtaining rent relief is a two-step process.

Firstly, a rent relief request must be in writing and accompanied by a statement that the Tenant is an eligible Tenant and that the Tenant has satisfied the decline in turnover test. The request must set out the following;

• which turnover test period the Tenant has used and the Tenant's turnover for the turnover test period;

• whether the Tenant relies on the ordinary comparison period or utilised an alternative turnover method;

• if the Tenant utilised an alternative turnover method, details of how the turnover was calculated;

• the Tenant's decline in turnover;

• the reduction in rent that would satisfy the Landlord's minimum offer obligations under Regulation 27(8) (being reduction in rent proportional to reduction in turnover); and

• any other circumstance the Tenant would like the Landlord to consider when making an offer.

Secondly, the tenant must satisfy the evidentiary requirements.

To avoid the rent relief request lapsing, the Tenant must within 14 days of making its request, provide evidence of the turnover. That information must include at least one of:

• extracts from the Tenant's accounting records;

• the Tenant's business activity statements;

• the Tenant's bank statements; and

• a statement prepared by a practising accountant.

The Tenant must also include a statutory declaration, made by the Tenant stating that the information and evidence provided is true (to the best of the Tenant's knowledge and belief).

Key dates

• If a Tenant would like to claim rent relief from 28 July 2021, they must submit a request with their supporting documentation prior to 30 September 2021. If a valid request is not made by the Tenant prior to this date, the Tenant will only be eligible for rent relief from the date the valid request is made.

• Once a Tenant has made a valid request for rent relief, the Landlord must within 14 days of receiving the evidence, provide a rent relief offer in writing to the Tenant;

• The Tenant is deemed to have accepted the Landlord’s first offer after 14 days unless an application to the VSBC has been made (save for when a rent relief agreement has been reached);

• There is a requirement by the Tenant (no later than 31 October 2021), to provide reassessment of rent relief evidence. A failure to provide that information puts the Tenant at risk of losing any previously agreed rental relief.

Rent increases

A Landlord must not increase the rent between 28 July 2021 and 15 January 2022. This will apply regardless of whether the Tenant has requested rent relief.

Mediation

As per the previous rent relief scheme, the Regulations set out the criteria and process for a Landlord or Tenant to refer a dispute to the Small Business Commission for free mediation should it be required.

If have any questions or require any assistance making an application for rent relief or negotiating with your Tenant or Landlord, please contact:

Vittoria De Stefano
Principal Lawyer
M 0407 091 301 | T 03 5226 8520
E vdestefano@ha.legal

Madeleine Luppino
Lawyer
T 03 5226 8564
E mluppino@ha.legal