The Commercial Tenancy Rent Relief Scheme is back

Following further lockdowns, many commercial tenancies are continuing to suffer the ongoing financial impact of the COVID-19 pandemic.  To address this, the Victorian Government has re-introduced the Commercial Tenancy Relief Scheme (Scheme), with the Commercial Tenancy Rent Relief Scheme Regulations 2021 (Regulations) commencing on 24 August 2021. Whilst the Regulations only commenced on 24 August 2021, rent relief will apply retrospectively from 28 July 2021 (subject to compliance with the Regulations as outlined below) and will continue until 15 January 2022.

The Regulations outline the obligations of tenants and landlords under the rent relief scheme, including determining eligibility, how much rent relief should be requested and offered and the timeframes to do so.

Does the new Rent Relief Scheme apply to me?  

For a tenant wanting to obtain rent relief, they must satisfy the three tiers of eligibility tests.

1.     The Lease must be an Eligible Lease

A lease will be considered an Eligible Lease if:

(a) it was in effect on 28 July 2021; and

(b) it is not subject to any exclusions provided for the in the Regulations; and

(c) the tenant is an Eligible Tenant.

2.      The Tenant must be an Eligible Tenant

A tenant will be considered to be an Eligible Tenant under the Regulations if:

(a) they have an annual turnover in 2020/2021 of under $50 million; and

(b) they have carried on business in Australia as at 28 July 2021 (including as a non-profit body or deductible gift recipient);  and

(c)  they are not subject to any exclusions in the Regulations; and

(d) they satisfy the Decline in Turnover Test.

3.     The Tenant must satisfy the Decline in Turnover Test

Similar to the 2020 commercial tenancy relief scheme, a tenant will need to show to decline of 30% of more in turnover to be eligible for rent relief, however with the cessation of JobKeeper, the process for establishing a decline in turnover under the Regulations has changed.

To determine if a tenant meets the Decline in Turnover Test (Test), the following must be considered:

(a) The tenant’s turnover for the turnover test period must show a decline equal to or in excess of 30% of the turnover compared to the comparison turnover  (or 15% decline for an ACNC registered charity);

(b) Determining the relevant dates of turnover for the purposes of assessing the decline is more complicated under the new Regulations, as tenants are likely to use different periods depending on their circumstances.

(i) The majority of tenants will need to use a 3 month consecutive period between 1 April 2021 and 30 September 2021 to determine their current turnover period, unless another period is agreed between the landlord and tenant;

(ii) The 3 month turnover period then needs to be compared with the same 3 month period in 2019, for example if the tenant chooses to apply the period of 1 June 2021 to 31 August 2021, the comparison period will be 1 June 2019 to 31 August 2019. The turnover for this period will be the comparison turnover and will be used to calculate the tenant’s decline in turnover;

(iii)  For those tenants who have commenced trading since 1 April 2019, an alternate method is set out under the Regulations to determine the comparison turnover period;

(iv)  The Regulations also provide for an alternate test to be used where other criteria applies to the Tenant which have impacted the turnover of the business in other ways, such as impact of drought or other natural disasters, irregular income or where the business has had significant percentage increases of turnover prior to the turnover test period.

(c) When calculating turnover, any financial support provided the Victorian state government must be included, however financial support from the commonwealth government is excluded.

Importantly, eligibility will be determined using a one-time Decline in Turnover Test, meaning once a tenant meet the eligibility criteria based on the Test, they will be eligible for rent relief for the entirety of the Regulations.

We appreciate this new Decline in Turnover Test is a complex one.  If you require further advice in respect of whether you or your tenant will meet the requirement for rent relief under the scheme, our Corporate and Commercial team are able to provide you with advice.

What is the process for obtaining rent relief under the new Rent Relief Scheme?

Once a tenant is satisfied they meet the eligibility criteria, the process for requesting relief is as follows:

1. The tenant must submit a rent relief request in writing to the landlord.
2. The request must include a statement which specifies:

(a) that the tenant is an Eligible Tenant;

(b) that the Decline in Turnover Test has been met, including:

(i)  the tenant’s turnover test period;

(ii) the tenant’s comparison turnover (or alternative comparison turnover);

(iii) the tenant’s decline in turnover; and

(iv)  what reduction in rent is being requested.

3. Within 14 days of that statement being provided to the landlord, the tenant must provide:

(a) evidence of the turnover figures, in the form of accounting records, BAS Statements, statements issued by an ADI or a statement prepared by an accountant; and

(b) a statutory declaration confirming that the information in the application and evidence provided by is true.

This is a crucial step in the rent relief process.  Failure to provide this evidence within 14 days will result in the request lapsing. If this occurs, an entirely new request will need to be submitted.  Tenants should be aware that if they allow 3 requests for rent relief to lapse, they will not be able to make any further requests for relief. Tenant’s should therefore be equipped and prepared to evidence their decline in turnover upon a request being made to a landlord, to avoid their request lapsing. In conjunction with this, landlords should be aware that they do not need to offer any rent relief until they have been provided evidence supporting that relief request.

4. Landlords must offer rent relief to the tenant within 14 days of receiving evidence of the decline in turnover in support of a valid application for rent relief from the tenant. The landlord’s offer of rent relief must (at a minimum):

(a) offer rent relief proportional to the tenant’s decline in turnover; and

(b) provide for no less than 50% of the rent relief offered to be in the form of a waiver of rent.

For example, where a Tenant has suffered a decline of 40% in turnover, a Landlord must at a minimum offer 40% rent relief, with 20% being by way of waiver and 20% by way a deferral.

Landlords are also required to take into consideration ‘other circumstances’ that the tenant would like the landlord to consider. The Regulations have provided no detail as to what would constitute ‘other circumstances’, meaning that tenants could include in their statements to the landlord, anything they consider relevant to their request for rent relief.

5. The tenant and landlord will be deemed to have agreed on the landlord’s offer for rent relief if, after 15 days, the tenant has not referred the matter to the Small Business Commission and the landlord’s offer complies with the minimum requirements under the Regulations.
6. Rent relief will be effected by way of a variation of lease or another agreement entered into between the landlord and tenant.
7. Where an agreement is reached prior to 30 September 2021, tenants will be required to resubmit updated information to the landlord prior to the reassessment date being 31 October 2021. This will be an opportunity for the rent relief to be reassessed from 31 October 2021 to take into account any change in the tenant’s decline in turnover since the original request.  If a tenant fails to submit the information required for the reassessment, any waiver of rent relief agreed pursuant to the agreement for rent relief will no longer apply.

Timing is crucial

The Regulations contain a number of important time frames which it is crucial for landlords and tenants be aware of:

• For a tenant to be entitled to rent relief commencing on 28 July 2021, a valid request for rent relief must be made by 30 September 2021. It is therefore essential that tenants consider whether they want to apply for rent relief now. If they do, rent relief requests and accompanying statements must be submitted before 30 September 2021.  Failure to make an application prior to this date will mean a landlord is only obliged to grant rent relief commencing on the date the application is made.
• If a request for rent relief is submitted, the tenant must ensure the supporting evidence is provided within 14 days in order for the request not to lapse.
• The landlord must offer rent relief to the tenant within 14 days of a valid request (supported by the required evidenced) from the tenant.
• If the tenant does not agree with the landlord’s subsequent offer for rent relief, the tenant has 15 days from the date of that offer to refer the matter to the Small Business Commission. Otherwise, that offer will be deemed accepted.
• Tenants who have reached an agreement for rent relief prior to 30 September 2021, must ensure they provide the require information for a rent relief reassessment prior to 31 October 2021. Failure to do so can result in any agreement reached for waiver of rental no longer applying, meaning tenant’s will only receive the benefit of any agreement reached for rent deferral and otherwise will be required to pay all rent.

To ensure compliance with the new Regulations, we recommend landlords and tenants diarise the exact dates and timeframes to ensure important deadlines are not missed.

What the new Rent Relief Scheme means for landlords

Where a tenant is eligible for rent relief and makes a compliant request, landlords must provide rent relief that matches their tenant’s fall in turnover.

Additionally, landlords of eligible leases are prohibited from increasing rent payable between 28 July 2021 and 15 January 2022. This applies regardless of whether your tenant has applied for rent relief or not.

The Victorian Government has also indicated that it will also establish an $80 million Landlord Hardship Fund to assist landlords who are providing rent relief for their tenants under the rent relief Scheme.

Further advice

The new Regulations outlining the rent relief scheme are lengthy and complex and there are numerous changes from the 2020 rent relief scheme. If you require further advice in relation to eligibility for rent relief, the process to obtain or to provide relief or if you require assistance with your negotiations, do not hesitate to contact our Corporate and Commercial team.

We are also able to assist to document agreed variations in a form which is binding and can give certainty to all parties regarding their obligations moving forward.