Here We Go Again; A New Rent Relief Scheme for Business Owners

Insights by Emma Milne (Senior Associate), Scott McKenzie (Director), Greg Thomas (Director) and Joel Garrett (Associate) Velocity Legal

On 24 August 2021 the Victorian Minister for Small Business released the Commercial Tenancy Relief Scheme Regulations 2021 (2021 Regulations).

 

Detailed Guide

We provide a brief summary of the 2021 Regulations in this article. If you would like a more detailed summary of the changes, please email [email protected] to request a copy of our more detailed guide.

 

Summary Table

The key takeaways from the 2021 Regulations are set out in the table below.

 

Headline Comment

The 2021 Regulations are far more complex than their predecessors.

The 2020 rent relief scheme (under the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 as released on 1 May 2020 and amended on 22 September 2020 and 22 December 2021 (2020 Regulations)) outsourced various concepts to other legislation that was introduced in the face of the COVID-19 pandemic. For example, eligibility under the 2020 Regulations was partly tied to a tenant’s eligibility for a JobKeeper payment.

The 2021 Regulations do not have that luxury. Instead, eligibility is built directly into the regulations themselves making the regulations far more complicated.

There are several eligibility requirements and complex processes that must be followed by both landlords and tenants to ensure compliance with the regulations. If we have learnt anything from recent VCAT outcomes analysing the 2020 Regulations it is that it is better to ‘measure twice and cut once’ than to make potentially costly mistakes.

Eligibility

An eligible lease is a retail lease or non-retail commercial lease or licence that is:

(a)  n effect on 28 July 2021;
(b) under which the tenant is an eligible tenant; and
(c) not excluded.

A tenant is an eligible tenant if it:

(a) is an entity that, as at 28 July 2021 carried on a business in Australia;
(b) is an SME entity;
(c) satisfies the decline in turnover test; and
(d) is not excluded.

There are various excluded leases and tenants including government agencies, companies in liquidation, individuals in bankruptcy or if the tenant is connected with a group of entities whose aggregated turnover in the most recent financial year exceeded $50 million. Each tenant and each lease will need to be closely analysed to determine whether eligibility criteria is met.

Relief for Tenants

Eligible tenants who provide a compliant request are entitled to a reduction in rent proportionate to their reduction in turnover over a three month period compared to a comparison period in 2019 (unless an alternative test period applies).

There are various complex alternative tests which might apply to tenants who began trading after 1 April 2019 or have otherwise had major changes since 1 April 2019 which has impacted the tenant’s turnover.

Requests Prior to 30 September 2021

For compliant relief requests received by a landlord prior to 30 September 2021, turnover will be based on a consecutive three month period between 1 April 2021 and 31 September 2021 and the same period in 2019.

The relief will apply from retrospectively from 28 July 2021 and end on 15 January 2022.

Request After 30 September 2021

For compliant requests on and from 1 October 2021, the relevant turnover will be based on the September 2021 quarter compared to the September 2019 quarter.

Relief will apply from the date that the compliant request is provided to the landlord and will end on 15 January 2022.

Landlord’s Offer

Relief offered must:

(a) relate to up to 100% of the rent payable during the relief period;
(b) at a minimum, be proportional to the decline in a tenant’s turnover in the comparison period;
(c) provide that at least 50% of the relief offered be by way of waiver, with the balance deferred (unless agreed otherwise);
(d) take into account part payments made by the tenant; and
(e) take into account any other circumstances that the tenant would like the landlord to consider.

What is Included in Turnover?

A tenant’s online sales are to be included in the tenant’s turnover calculation (the 2020 Regulations required a tenant to set out decline in turnover ‘associated with the premises’ only).

Turnover will also include any Victorian government COVID-19 business support grants or financial assistance. Commonwealth grants or financial assistance is not included in the tenant’s turnover.

Documents and Evidence in Support A tenant’s request for relief must be accompanied by numerous statements and documents in support, as well as a statutory declaration declaring that the information provided is true and correct.
Request Can Lapse

A tenant’s request will lapse after 14 days if they have not provided the required evidence in support of the request. If a request lapses:

(a)  the tenant can make a new request but it will restart the request process (it is not a continuation of an existing request); and
(b)  the protections against evictions for non-payment of rent and outgoings will not apply.

If a tenant’s request lapses three times, they can be prevented from making a further request for relief.

Mandatory Readjustment of Relief

A tenant who has submitted a compliant request prior to 30 September 2021 must also provide additional information to the landlord prior to 31 October 2021 regarding the tenant’s turnover in the September quarter, and an adjustment for rent relief moving forward must be made if the tenant’s decline in turnover has changed.

Failure to provide the additional information can forfeit a tenant’s entitlement to any waiver of rent after 31 October 2021.

No Breach of Lease

A tenant under an eligible lease will not be deemed to have breached their lease during the period from 28 July 2021 to 15 January 2022 for non-payment of rent and outgoings but only if:

(a)  they have made a compliant request; and
(b)  they continue to pay the rent that would be payable up front when an agreement is reached.

Referral to the VSBC for Mediation Landlords and tenants can refer the matter to the Victorian Small Business Commissioner (VSBC) if they can not reach agreement.
Deemed Acceptance of offer Unless a tenant has referred the matter to the VSBC for mediation within 14 days of the landlord providing their compliant offer, the tenant will be deemed to have accepted the landlord’s offer on the date that is 15 days after the tenant received the landlord’s offer, even where an agreement between the landlord and the tenant has not been reached. It is important that landlords and tenants comply with the strict time frames in the 2021 Regulations.
Binding Orders A tenant can apply to the VSBC for binding orders if the parties fail to reach agreement at the mediation. There are strict time frames and processes that tenants, landlords and the VSBC must follow.
Application to VCAT Landlords and tenants can apply to the Victorian Civil and Administrative Tribunal (VCAT) if the parties are unable to reach agreement at mediation but only if the VSBC has issued the required certificate.
Rent Increases Landlords are prohibited from increasing rent during the period from 28 July 2021 to 15 January 2022. Any increase otherwise due in the protection period is voided and can never be claimed by a landlord unless otherwise agreed.
Extension of Lease Where any rent is deferred, landlords must offer to extend the lease by a period equivalent to the period that rent is deferred on the same terms and conditions as applied prior to 28 July 2021.

If you want more information about the Commercial Tenancy Relief Scheme 2021, please email [email protected] to request our Rent Relief Rulebook 2.0.

This article is the opinion of the author and in no way constitutes legal advice.. We recommend reaching out to our expert property law team who will be able to advise you on your specific circumstances and assist navigating the complex processes contemplated in the 2021 Regulations.

Insight Authors…

EMMA MILNE

Senior Associate

Emma is a gun at property law. She is relentless and meticulous in finding solutions for her clients. Whether developer, landlord, tenant or investor, she gets the job done. You’ll also be in good company if you’re a Melbourne Storm, Renegades or Pies fan.

0429 290 389  •  READ ALL OF EMMA'S ARTICLES

SCOTT MCKENZIE

Director

Scott has been recognised as a leading commercial lawyer in Australia. He is held in high regard for his strategic mindset and is renowned for being technically sharp. Scott’s practice covers all aspects of commercial law, with a strong emphasis on complex transactions and business co-ownership matters. Scott is focused on leading by example. He provides precise advice and tenaciously protects his clients.

Accredited Specialist in Commercial Law.

0432 920 510  •  VIEW DETAILED PROFILE   •  READ ALL OF SCOTTS ARTICLES

GREG THOMAS

Director

With over 30 years’ experience as a commercial lawyer, Greg is someone you can trust. He has experience acting for both corporate and private clients in complex transactions. Greg’s priority is providing practical and effective advice which meets his clients’ needs. Outside of the office, Greg keeps up with sports and is always partial to a great Netflix series.

0455 100 592  •  VIEW DETAILED PROFILE  •  READ ALL OF GREG'S ARTICLES

JOEL GARRETT

Associate

With property law experience in both law firms and in-house legal teams, Joel has a great understanding of client needs and will be the reliable guide you’re looking for. A great team player, Joel is always ready for a challenge (whether it be a complex legal matter or representing Australia at dodgeball!) and will go above and beyond to seek the best solution for his clients.

0499 167 151   •  READ ALL OF JOEL'S ARTICLES

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