In 2020, we provided various updates on the temporary relief arrangements for commercial leases in Victoria owing to COVID-19. With Victoria finding itself in another lockdown, the Victorian Government has again introduced a Commercial Tenancy Relief Scheme (CTRS), which will operate between 28 July 2021 and 15 January 2022. The CTRS is enabled by the Commercial Tenancy Relief Scheme Act 2021 (Vic) (the Act) with the relevant regulations being the Commercial Tenancy Relief Scheme Regulations 2021 (Vic) (the Regulations).
Landlords and tenants who became accustomed to the relief scheme that operated in 2020 should be aware that the 2021 scheme is significantly different than that from last year – with JobKeeper no longer operational, eligibility criteria have been altered, and there are stricter requirements on tenants to provide evidence of eligibility when making the request, and to act promptly in negotiations with the landlord.
In this update, we will outline the key features of the CTRS and the main differences between the scheme which operated last year and the current scheme.
Last year, many of the eligibility requirements revolved around JobKeeper; and proof of receiving JobKeeper being required for a tenant to be eligible for relief. Without JobKeeper, eligibility is now determined based on a new turnover test.
To qualify as an Eligible Tenant a tenant must:
- be an SME entity (with turnover in 2020/21 of less than $50,000,000);
- have, as of 28 July 2021, carried on business (or been a non-profit body or deductible gift recipient);
- not be subject to any of the exclusions – for example, not be a publicly listed company or subsidiary of one, or be mainly conducting a farming or agricultural business; and
- satisfy the Decline in Turnover Test
Decline in Turnover Test
The Decline in Turnover Test will be satisfied if the tenant’s turnover in the Turnover Test Period was at least 30% lower than its Comparison Turnover. To determine this the tenant will need to identify three terms:
- Turnover Test Period; and
- Comparison Turnover.
Turnover is, defined in the same way as GST turnover, and specifically includes state government COVID grants and excludes federal government grants.
Unlike last year, where only turnover from specific premises were considered; under the CTRS the turnover of the entire business is to be considered.
The Turnover Test Period and Comparison Turnover will depend on the day the tenant commenced trade and is best set out by reference to the following table:
|Date the tenant first commenced business||Turnover Test Period||Comparison Turnover|
|Prior to 1 April 2019||The tenant’s choice of any three consecutive whole calendar months between 1 April 2021 and 30 September 2021||The three corresponding months in 2019|
|1 April 2019 – 31 March 2020||The tenant’s choice of any three consecutive whole calendar months between 1 April 2021 and 30 September 2021||The sum of the tenant’s turnover for each whole month of trade to 31 March 2020, divided by the number of whole months, multiplied by 3|
|1 April 2020 – 31 March 2021||The tenant’s choice of any three consecutive whole calendar months between 1 April 2021 and 30 September 2021||The sum of the tenant’s turnover for each whole month of trade to 31 July 2021, divided by the number of whole months, multiplied by 3|
|After 31 March 2021||A period agreed by landlord and tenant following good faith negotiations||The tenant’s total turnover to 31 July 2021, divided by the number of days trade, multiplied by 92|
The tenant’s rent relief request must set out:
- which turnover test period the tenant has used;
- 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 (tenants should assume this requires them to set out in detail the calculations relied on);
- the tenant’s decline in turnover;
- the reduction in rent that would satisfy the landlord’s minimum offer obligations to offer a reduction in rent proportional to reduction in turnover; and
- any other circumstance the tenant would like the landlord to consider when making an offer.
Within 14 days of the request being made, the tenant must provide supporting evidence – which for the CTRS now includes a requirement for a statutory declaration.
The requirement for an offer remains the same as in 2020. The landlord must make an offer proportional to the tenant’s decline in turnover, and no less than 50% of the rent relief must be in the form of a waiver. However, the landlord must also consider the “other circumstances” which were contained in the rent relief request.
If agreement is not reached within 14 days of the landlord making an offer, and the offer met the minimum requirements, and the tenant has not referred the matter to the Small Business Commissioner; then the CTRS contains deeming provisions which mean the tenant will be deemed to have accepted the landlord’s offer.
Requests for rent relief dating back to 28 July 2021 must be properly submitted before 30 September 2021. After that date, requests run from the date a proper request is submitted up to 15 January 2022.
Mandatory reassessment – by 31 October 2021, rent relief agreements based on a request made by 30 September 2021, where the tenant commenced trading before 1 April 2021 are subject to reassessment of the change in turnover. If there is a change from the tenant’s decline in turnover, then from 31 October the rent relief must be adjusted so that it is based on the tenant’s actual change in turnover.
If the tenant doesn’t ‘t provide the required information on time including a statutory declarations, the tenant loses the benefit of the agreed waiver of rent for the period from 31 October 2021. However the existing rent relief agreement continues to apply in the meantime if the tenant cannot trade due to ill health, or injury, or natural disaster, or if the parties agree.
Conclusion and Next Steps
As can be seen, the 2021 CTRS is significantly different to the scheme which operated in 2020. From the eligibility changes, requirement to consider “other circumstances”, and deeming provisions, there is a lot for landlords and tenants to consider.
Both landlords and tenants should carefully navigate the complex regulations and aim to come to a resolution that is acceptable to both parties.
At CIE Legal, we act for both landlords and tenants; in negotiations and determining the finer details of rent relief. We are ready and happy to assist with any such matters under these new regulations or the earlier versions.