26 Aug 2021

Victoria's new COVID-19 Commercial Tenancy Relief Scheme fleshed out by Regulations

The Victorian Government has released the Commercial Tenancy Relief Scheme Regulations 2021 (Vic)  which is the crucial element for implementing the new Scheme foreshadowed two weeks ago in response to further COVID-19 lockdowns in Victoria during 2021.

The Regulations, and therefore the new Scheme, will retrospectively commence on 28 July 2021, and are revoked on 16 January 2022.

1. Eligibility

Various tests have to be satisfied before a tenant is eligible for relief under the new Scheme.

Eligible lease test: The new Scheme will apply to "eligible leases", being a retail lease or a non-retail commercial lease or licence:

  • that is in effect on 28 July 2021; and
  • under which the tenant is an "eligible tenant"; and
  • under which the tenant is not a listed company or subsidiary of a listed company, whether in Australia or overseas; and
  • under which the premises may not be used wholly or predominantly for farming activities.

If an eligible lease is extended or renewed (pursuant to an option or otherwise on substantially the same terms), the new lease is deemed to be a continuation of the eligible lease for the purposes of the new Scheme.

Eligible tenant test: An "eligible tenant" is a tenant that:

  • as at 28 July 2021, carried out a business in Australia, was a non-profit body pursuing its objectives principally in Australia or was a particular class of deductible gift recipient; and
  • is an "SME entity", being a business or non-profit entity with turnover of less than $50 million for FY2020/2021 (or if the tenant was not a business or a non-profit entity for the whole of that financial year, it is likely to have turnover of less than $50 million for FY2021/2022); and
  • satisfies the decline in turnover test; and
  • is not a listed company or subsidiary of a listed company; and
  • is not a specified excluded entity (which entities include Australian government agencies, companies in liquidation, individuals in bankruptcy and entities which are connected or affiliated with another entity or entities which collectively had aggregated turnover exceeding $50 million in FY2020/2021 (or if the tenant did not carry on business for the whole of that financial year, the group of entities is likely to have aggregated turnover exceeding $50 million in FY2021/2022).

Decline in turnover test: The general decline in turnover is satisfied for a tenant which began trading (whether or not at its current premises) before 1 April 2021 if the tenant's turnover in a consecutive 3 whole month period (elected by the tenant) between 1 April 2021 and 30 September 2021 ("turnover test period") is at least 30% less than the tenant's turnover in the corresponding 3 whole month period in 2019 ("relevant comparison period"). If the tenant is a registered health charity (other than a non-government school or specified university), the decline in turnover is only required to be at least 15%.

However, there are alternative methods for comparing turnover where:

  • the tenant began trading (whether or not at its current the premises) on or after 1 April 2019 and before 1 April 2021, or on or after 1 April 2021;
  • there was an acquisition of disposal of part of the tenant's business;
  • there was a restructure of the tenant's business;
  • the tenant had a substantial increase in turnover, or had irregular turnover, prior to the "turnover test period";
  • the tenant's business was conducted wholly or partly in a declared drought or natural disaster zone and the drought or natural disaster changed the tenant's turnover;
  • the tenant is a sole trader or small partnership with no employees and the tenant's business was affected by sickness, injury or leave; or
  • the tenant temporarily ceased trading for a week or more prior to 28 July 2021 due to an event or circumstances outside the ordinary course of the tenant's business.

"Turnover" for the purposes of the Regulations is "current GST turnover" as determined generally in accordance with the A New Tax System (Goods and Services Tax) Act 1999 (Cth), with some modifications specified in the Regulations. Specifically, it:

  • includes all Victorian government COVID-19 business support grants received by the tenant;
  • excludes all Commonwealth government COVID-19 related grants or financial assistance received by the tenant; and
  • is not limited to turnover generated from the leased premises and can include internet sales.

2. Eviction ban

If a tenant has made a rent relief request, the landlord must not:

  • evict the tenant;
  • re-enter or recover the premises;
  • call on any security relating to non-payment of rent; or
  • attempt to do any of the above,

because of non-payment of rent or outgoings. However, the landlord is not prohibited from doing any of those things for any other reason (except where the tenant reduces the opening hours of, or closes, the business conducted at the premises. See part 8 below).

3. Rent relief

A tenant may request rent relief from its landlord during the "protection period" which starts on 28 July 2021 and ends on 15 January 2022. Importantly, after a rent relief request is made but before any rent relief agreement is entered into, the tenant may start paying rent reduced by the same percentage as the tenant's decline in turnover (and must do so in order to obtain the benefit of the protections afforded by the Regulations).

A rent relief request must be accompanied by a statement from the tenant that the tenant is an eligible tenant and satisfies the decline in turnover test. The statement must also set out specified details regarding how the tenant satisfies the decline in turnover test and detail the reduction in rent that would satisfy the minimum requirements for an offer of rent relief which the Regulations require the landlord to make.

Within 14 days after the rent relief request is made, the tenant must provide:

  • financial information to the landlord which evidences the turnover figures in the tenant's statement and which must include one of the following:
    • extracts from the tenant's accounting records;
    • the tenant's BASs;
    • the tenant's bank account statements; or
    • a statement prepared by a practising accountant; and
  • a statutory declaration made by the tenant or an authorised officer of the tenant stating that the tenant is an eligible tenant and that the information provided by the tenant to support the rent relief request is true to the best of the tenant's knowledge and belief.

A failure to provide the financial information and statutory declaration within time will result in the lapsing of the rent relief request. The tenant may make further rent relief requests but is prohibited from doing so if 3 prior requests have lapsed.

The landlord will have 14 days after receiving the financial information and statutory declaration from the tenant to offer rent relief (or such other time agreed between the landlord and tenant). The offer of rent relief must at a minimum be proportional to the tenant's decline in turnover, and at least 50% of the rent relief offered must be a waiver of rent unless the parties agree otherwise.

The landlord and tenant must negotiate in good faith with a view to agreeing on the rent relief to apply and the tenant will be deemed to have accepted the landlord's offer if the landlord and the tenant have not reached agreement and the tenant has not referred the matter to the Small Business Commission 15 days after the landlord makes a complying offer.

Once the parties have agreed to the rent relief, if the request and supporting evidence was provided:

  • on or before 30 September 2021, the rent relief will apply on and from 28 July 2021; or
  • after 30 September 2021, the rent relief will apply on and from the date of the tenant's rent relief request,

and the rent relief will apply until 15 January 2022.

A tenant may make subsequent rent relief requests if, after a rent relief agreement is made, the tenant's financial circumstances materially change. The same process set out above will apply. 

4. Mandatory reassessment of rent relief

If a rent relief request is made on or before 30 September 2021, a rent relief agreement is made and the tenant began trading before 1 April 2021, there must be a reassessment on 31 October 2021 of the rent relief provided.

If the tenant fails to provide the required information for the reassessment on time, then any waiver of rent will cease to apply from 31 October 2021, unless the tenant is unable to trade because of sickness or injury, or because of natural disaster, or if the parties agree otherwise.

5. Deferred rent and extension of term

If a rent relief agreement provides for a deferred payment of rent, the landlord must offer to extend the term of the lease by a period equivalent to the period for which rent was deferred, unless the parties agree otherwise.

Any payment of rent which is deferred must be deferred until after 15 January 2022, and the deferred rent must be amortised over the greater of the balance of the term (as extended) and 24 months, unless the parties agree otherwise.

If rent was deferred under the previous Scheme and the tenant requests rent relief under the new Scheme, the previously deferred rent is further deferred until after 15 January 2022, following which time the previously deferred rent must be paid in the same instalments and frequency as agreed under the previous Scheme.

No interest may be charged on rent deferred under the new Scheme, or on rent previously deferred under the previous Scheme.

6. Rent increase ban

During the protection period, there must not be any rent increases, unless the parties agree otherwise in writing. Any rent increases which were intended to occur on a date during the protection period are voided and may never be claimed by the landlord.

7. Outgoings

A landlord must consider waiving recovery of outgoings during any part of the protection period that the tenant is unable to trade. It is important to note that this is discretionary and landlords are not obliged to provide any outgoings relief.

If the tenant is not able to operate their business for any part of the protection period, the landlord may also cease to provide any services to the premises if reasonable in the circumstances or if requested by the tenant.

8. Change in trading hours

A tenant may reduce its trading hours, or close the premises and cease trading entirely, during the protection period. A tenant does not need to satisfy the decline in turnover test in order to exercise this right but the tenant must otherwise be an eligible tenant under an eligible lease.

If a tenant exercises this right, the landlord is prohibited from evicting the tenant, re-entering the premises or calling on any security because of the reduction in trading hours or the closure of the premises.

9. Dispute resolution processes

Disputes arising from the Regulations may be referred to the Victorian Small Business Commission (VSBC) for mediation. Only after such mediation has failed (and a certificate issued by the VSBC) can proceedings be commenced in VCAT or a court.

If there is a dispute regarding a tenant's rent relief request, and the landlord either fails to respond or sufficiently respond to a mediation or does not engage in the mediation in good faith (in the opinion of the VSBC), and the VSBC has issued a failed mediation certificate, the tenant may apply to the VSBC for a binding order for rent relief. If the VSBC considers that it is fair and reasonable in all the circumstances to do so, it may make a binding order directing the landlord to give or agree to give specified rent relief to the tenant, which may include a waiver or deferral of rent. A binding order may be amended or revoked upon application by a party to the VSBC. The VSBC may also amend a binding order on its own initiative.

However, the VSBC will not be able to make a binding order if the landlord (or the tenant) commences proceedings in VCAT or a court in relation to the dispute. VCAT has been granted the same jurisdiction to hear disputes in respect of eligible leases as it has in respect of retail leases under the Retail Leases Act 2003 (Vic). The enforcement of binding orders by a tenant against the landlord may be made by application to VCAT. VCAT is also empowered to review the decisions of the VBSC under the Regulations, including in relation to binding orders, but any application for review must be made within 14 days of the VSBC's decision.

Related Knowledge

Get in Touch

Get in touch information is loading

Disclaimer

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.