The Victorian Rent Relief Rulebook 2.0

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

1. The Commercial Tenancy Relief Scheme Regulations 2021, aimed at mitigating the impact of COVID-19 on commercial tenancies between 28 July 2021 and 15 January 2022 were released on 24 August 2021 (2021 Regulations).

2. The 2021 Regulations are a far cry from 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), incorporating new complex processes and eligibility requirements.

3. A key takeaway from recent VCAT outcomes regarding the 2020 Regulations is that compliance with the regulations is critical.

4. This article outlines several of the key components of the 2021 Regulations that govern the rights and obligations of landlords and tenants under the Commercial Tenancy Relief Scheme 2021

Commencement

5. The 2021 Regulations apply retrospectively from 28 July 2021 and will lapse on 15 January 2022.

6. Rent relief will apply retrospectively if a tenant provides a compliant request with all supporting statements, documents and statutory declarations prior to 30 September 2021. Otherwise, relief will only be available for tenants from the date that they provide the compliant request to the landlord.

 

Eligibility

7. Only eligible tenants under eligible leases will be eligible for the relief and protections contemplated in the 2021 Regulations.

 

Item Description
Eligible Lease

A lease is an eligible lease if it is a retail or non-retail commercial lease or licence and:

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

If the lease is renewed or otherwise varied on substantially the same terms as the eligible lease after 28 July 2021, that lease is deemed to be a continuation of the eligible lease.

There are some excluded classes of lease prescribed in the 2021 Regulations. These include:

(a) leases wholly or predominantly used for agricultural purposes; and
(b) leases under which a tenant is a:

(i) listed corporation;
(ii) body corporate, company or corporation whose securities are listed on a stock exchange outside of Australia; or
(iii) a subsidiary of a listed corporation or body corporation, company or corporation whose securities are listed on a stock exchange outside of Australia.

Eligible Tenant A tenant will only be eligible for relief if they are an eligible tenant.
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.Excluded tenants include:(a) Australian government agencies;
(b) local governing bodies;
(c) tenant companies in liquidation;
(d) individual tenants in bankruptcy; or
(e) tenants connected with another entity or entities and the aggregated turnover of that group in the most recent financial year exceeded $50 million (or is likely to exceed $50 million in the financial year ending 30 June 2022).
SME Entity

A tenant is an SME entity if the tenant is either a non-profit body or carried on a business and:

(a) in the financial year ending 30 June 2021 (FY21), the annual turnover for was less than $50 million; or
(b) if they did not carry on a business for the whole of FY2021, the annual turnover for the financial year ending 30 June 2022 is likely to be less than $50 million.

Turnover

8. Turnover is as defined in the A New Tax System (Goods and Services Tax) Act 1999 and includes all Victorian government COVID-19 business support grants received by the tenant to mitigate the effects of the COVID-19 pandemic during the relevant turnover period but excludes any grant or financial assistance payment provided to the tenant by the Commonwealth for the same reason.

9. Turnover will include any turnover derived from internet sales of goods and services. This is a major change from the 2020 Regulations which required a landlord to take into account the reduction in turnover associated with the premises only. Businesses who have been able to successfully pivot their business to online sales therefore may not be eligible for relief under the 2021 Regulations.

Decline in Turnover

10. A tenant is only eligible for relief under the 2021 Regulations if they satisfy the decline in turnover test.

11. The tenant satisfies the decline in turnover test if:

1.1 the tenant’s turnover in the turnover test period is less than the turnover in the tenant’s comparison period; and

1.2 the difference is at least 30% (unless the eligible tenant is an ACNC-registered charity (other than a Table A provider, Table B provider or a school) in which case the reduction is 15% or more).

Comparison Period

12. The 2020 Regulations utilised the JobKeeper comparison calculations and alternative tests to determine whether a tenant met the reduction in turnover threshold for the relevant period. The 2021 Regulations do not have that luxury. Instead, the 2021 Regulations have introduced their own comparison calculator including alternative tests. The main items to note are:

 

Item Description
Turnover test period

For rent relief requests prior to 30 September 2021:

(a) if the tenant began trading before 1 April 2021, the test period is a consecutive three month period between 1 April 2021 and 30 September 2021. The tenant can elect which consecutive three months to apply; and
(b) if the tenant began trading on or after 1 April 2021, the tenant and the landlord must negotiate in good faith to agree on the turnover test period to apply.

For rent relief requests on or after 1 October 2021, and for the mandatory reassessment of rent relief the turnover test period is the quarter ending on 30 September 2021.

More on the mandatory reassessment below.

Comparison Period Unless an alternative comparison period applies, the comparison period will be the three month period in 2019 corresponding to the three month period elected by the tenant in 2021.
Alternative tests

There are alternative tests for:

(a) businesses who began trading after 1 April 2019;
(b) businesses that changed hands between the start of the comparison period and before the test period;
(c) businesses that have restructured after the start of the comparison period but before the turnover test period;
(d) tenant’s who have seen a substantial increase in turnover of:

(i) 50% or more in the 12 months immediately before to the test period;
(ii) 25% or more in the six months immediately before to the applicable test period; or
(iii) 12.5% or more in the three months immediately before the applicable test period;

(e) businesses affected by drought or natural disaster;
(f) businesses with irregular turnover;
(g) sole traders or small partnerships where at least one of the partners did not work for part of the relevant comparison period due to illness, injury or leave; or
(h) where a tenant temporarily ceased trading during the relevant comparison period for a week or more due to an event or circumstances outside the ordinary course of the tenant’s business.

Each of the alternative tests have complex criteria that a tenant would need to satisfy. If you think that an alternative test applies to your business, please reach out for advice specific to your circumstances.

13. Where more than one alternative comparison turnover applies to the tenant, the tenant may choose which alternative test to apply.

 

Relief Period

14. Unlike the 2020 Regulations, rent relief will only apply retrospectively if a tenant provides a compliant request to the landlord by 30 September 2021. Otherwise, relief applies from the date that the compliant request is received.

15. The rent relief period ends on 15 January 2022.

 

Rent Relief

16. A tenant under an eligible lease who has suffered the requisite decline in turnover over the relevant test period may request relief from the landlord.

17. The request must be in writing and accompanied by a statement that:

17.1 the tenant is an eligible tenant; and

17.2 the tenant satisfies the decline in turnover test, including setting out how the tenant has calculated their decline in turnover.

18 Within 14 days of making the request, the tenant must also provide:

18.1 evidence substantiating the turnover figures contained in the tenant’s request; and

18.2 a statutory declaration stating that the tenant is an eligible tenant and that the information provided by the tenant is true to the best of the tenant’s knowledge.

19 The tenant can also provide details of any other circumstances that they want the landlord to consider.

20 If the tenant does not provide the evidence and statutory declaration in support of their request within 14 days of the original request for relief, the tenant’s request will lapse. A tenant can make a new request for relief. Once the tenant’s request for relief lapses three times, they can no longer make a request for relief.

21 A landlord must respond to the tenant’s request for relief within 14 days of receiving the request and all evidence in support (including the statutory declaration).

22 The landlord’s offer of relief must (Minimum Requirements):

22.1 relate to up to 100% of the rent payable during the relief period;

22.2 at a minimum, be proportional to the decline in a tenant’s turnover;

22.3 provide that at least 50% of the relief offered be by way of waiver;

22.4 take into account part payments of rent made by the tenant throughout the relief period; and

22.5 take into account any other circumstances the tenant would like the landlord to consider.

23 The landlord and the tenant must negotiate in good faith over the following 14 days. Unless:

23.1 the landlord’s offer does not satisfy the Minimum Requirements; or

23.2 the tenant has referred the matter to the VSBC for mediation,

the tenant will be deemed to have accepted the landlord’s offer of relief on day 15.

 

Payment of Deferred Rent

24. Deferred rent must be repaid to the landlord in equal monthly instalments across the greater of:

24.1 24 months from 16 January 2022 (when the 2021 Regulations lapse); or

24.2 the balance of the term of the lease.

25 Any deferred rental instalments due under the 2020 Regulations must be put on hold, and will not be repayable by the tenant until the 2021 Regulations lapse.

 

Mandatory Reassessment of Relief

26. Where a rent relief agreement has been made and:

26.1 the tenant’s request for relief was on or before 30 September 2021; and

26.2 the tenant began trading before 1 April 2021,

the tenant must provide:

26.3 the landlord with evidence of the tenant’s decline in turnover in the quarter ending 2021, compared to the quarter ending 2019 (unless an alternative test applies); and

26.4 a statutory declaration stating that the tenant is an eligible tenant and that the information provided is true to the best of the tenant’s knowledge,

so that the landlord can reassess the rent relief offered to the tenant.

27 Where the tenant’s change in turnover for the September quarter differs from the tenant’s decline in turnover utilised in the original request for relief, with effect from 31 October 2021, the rent relief agreement will be adjusted for the remainder of the rent relief period.

28 If a tenant does not provide the information required for the landlord to reassess the decline in turnover by 31 October 2021, the tenant’s rent relief agreement no longer applies to the extent that it relates to any waiver of rent. In other words, rent relief will still be provided by the landlord but the tenant will be required to add the rent that would otherwise have been waived to the deferred rent pool, which will be repayable at the expiry of the 2021 Regulations.

 

Subsequent Request for Relief

29. If a tenant’s circumstances materially change after an agreement is reached regarding rent relief, the tenant may make a new request for relief to the landlord. The new request must follow the relief request process.

30. Any new rent relief agreement will substitute the original rent relief agreement so any relief previously provided will need to be contemplated in the new agreement. Parties should carefully consider whether applying for subsequent relief will forfeit any relief provided under a pre-30 September 2021 request (and whether a landlord is required to offer relief retrospectively if a subsequent request to substitute an existing agreement is made after 30 September 2021).

 

Extension of Term

31. Where any rent is deferred, the landlord must offer the tenant an extension to the term of the lease on the same terms that applied prior to 28 July 2021 for a period equivalent to the period that rent is deferred.

 

Rent Increases

32. A landlord must not increase rent payable under the lease at any time during the protection period, unless the parties agree otherwise.

33. Any review that falls between 28 July 2021 and 15 January 2022 and which would increase the rent payable is voided and can never be claimed by the landlord. The 2021 Regulations do not contemplate what will happen to rent reviews that would decrease the rent payable.

 

Outgoings

34. A landlord:

34.1 Must consider waiving recovery of outgoings; and

34.2 can reduce the services offered to a tenant at the premises (such as cleaning services),

35. for any period that the tenant is unable to operate their business from the premises.

 

Protections Against Breach

36. Similarly to the 2020 Regulations, an eligible tenant under an eligible lease who has provided a compliant request to the landlord will not be considered to be in breach of their lease if:

36.1 the tenant reduces their business hours or ceases to operate from the premises during the protection period; or

36.2 the tenant does not pay the amount of rent or outgoings required to be paid under the eligible lease during the protection period. However, this protection only applies if the tenant continues to pay the proportion of rent that would be due up front under the 2021 Regulations (whether or not an agreement has been reached with the landlord).

37. A breach of an agreement reached between the parties will be a breach of the lease and the protections will no longer apply.

 

Dispute Resolution

38. Similarly to the 2020 Regulations, a landlord or a tenant under an eligible lease may refer a dispute about anything arising under the 2021 Regulations to the VSBC to mediate.

39. The referral must be in writing and:

39.1 in a form required by the VSBC;

39.2 accompanied by:

(a) the tenant’s written request for relief and all other materials given to the landlord in support of the request (or where the dispute relates to the mandatory reassessment, the information provided in support of the reassessment); and
(b) all relevant correspondence between the landlord and the tenant; and

39.3 may be accompanied by a written submission about the conduct of the landlord or the tenant with respect to relief provided under the 2020 Regulations.

40. The landlord or the tenant will have 10 business days after receiving notice of the application from the VSBC to respond to the dispute notice after which the VSBC will likely set the matter for mediation.

41. If a mediation fails, or if either party has not engaged in the mediation process in good faith, the VSBC may issue a regulation 41 certificate. The regulation 41 certificate certifies that the mediation has failed or is unlikely to resolve the dispute.

42. Following the receipt of the regulation 41 certificate:

42.1 either the landlord or the tenant may apply to VCAT to have the matter determined by the tribunal; or.

42.2 the tenant may, subject to the regulation 41 certificate incorporating several key statements, apply to the VSBC for binding orders.

43. Time is of the essence in making these applications, and we encourage anybody who has been unable to reach agreement at the VSBC to obtain legal advice regarding your rights and obligations as soon as possible.

 

What Relief is Available for Landlords?

44. Landlords who provide relief to eligible tenants may be eligible for:

44.1 grants under the Victorian Government’s hardship fund; and

44.2 land tax relief of up to 25%.

 

What Relief is Available for Landlords?

45. To be eligible under the hardship fund, the landlord must:

45.1 be a private individual or joint landlords who are private individuals;

45.2 have total taxable landholdings of less than $1 million; and

45.3 provide relief to an eligible tenant. Landlord’s who provide relief to tenant’s who are not eligible under the 2021 Regulations may not be eligible for the hardship fund grants.

46. Grants equivalent to the greater of the amount of rent waived or $3,000 are available per eligible tenancy.

47. Applications must be made by 31 October 2021.

48. More information on the land tax relief will be uploaded when the information is available.

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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