COVID-19 | Commercial tenancy relief measures extended in Victoria

The long awaited COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 (Vic) were released last night and will take effect from 29 September 2020.

Which tenancies will the Commercial Tenancy Relief Scheme (CTRS) now apply to?

The CTRS applies to ‘eligible leases’. The Amending Regulations have altered the definition of ‘eligible leases’ to be ‘a retail lease or a non-retail commercial lease or licence under which the tenant is:

• a SME entity (an entity with turnover in the prior financial year, or expected turnover in the current financial year, of less than $50 million); and
• an entity entitled (either as an employer or as a business participant, such as a sole trader or director a company) to a JobKeeper payment.’

For tenants who become ineligible for a JobKeeper payment after 29 September 2020, any request for rent relief prior to that date must be resolved in accordance with the CTRS and any existing rent relief agreement entered into prior to that date will continue to be binding on the parties.

When does the CTRS end?

As anticipated, the CTRS has been extended and will now end on 31 December 2020. However, the Government may further extend the CTRS.

A revised procedure for tenants requesting rent relief

When requesting rent relief, tenants must now provide a significant amount of supporting information. Any request must now be accompanied by the following:

• a statement from the tenant:
  • that the tenant’s lease is an eligible lease; and
  • that the lease is not excluded from the operation of the Regulations; and
  • setting out the tenant’s decline in turnover associated with the premises (adopting the same test as JobKeeper and expressed as a whole percentage); and
• information that evidences that the tenant:
  • is an SME entity; and
  • is an entity entitled to a JobKeeper payment, including the receipt number issued by the ATO and a copy of the tenant’s most recent JobKeeper notice from the ATO; and
• information that evidences the tenant’s decline in turnover, including at least one of the following:
  • extracts from the tenant’s accounting records;
  • the tenant’s business activity statements relating to the relevant turnover test period;
  • statements issued by an ADI (e.g. a bank) in respect of the tenant’s account; or
  • a statement prepared by a practising accountant.

Going forward, any applications for rent relief for periods on and from 30 September 2020 are not retrospective and landlords will only be required to grant rent relief for the period beginning on the date of a tenant’s compliant request until 31 December 2020. For tenants who still require rent relief, those requests should be made now to avoid inadvertently losing an entitlement to rent relief.

Landlords continue to have an obligation to respond to a compliant request for rent relief within 14 days.

Other Key Changes to the CTRS

The key changes to the CTRS for landlords and tenants include:

• Proportionality: Rent relief offered by landlords must now be, at a minimum, proportionate to the reduction in a tenant’s turnover associated with the business conducted at the premises. A tenant’s decline in turnover is calculated ‘consistently with the actual decline in turnover test applying to the tenant relating to the most recent turnover test period applying to the tenant‘. This means that the proportionality aspect of the rent relief is determined using a reduction in turnover for the most recent monthly or quarterly period and is unlikely to be reflective of a tenant’s overall reduction in turnover for the period 29 March to 31 December 2020.
• Waiver of rent: There is a continuing obligation for landlords to provide not less than 50% of the rent relief in the form of a waiver of rent, unless the landlord and tenant otherwise agree in writing. The Amending Regulations now require landlords to waive at least 50% of the rent relief for any subsequent requests for rent relief.
• Existing agreements: For landlords and tenants who have already entered into rent relief agreements under the earlier version of the CTRS, in addition to seeking further rent relief if a tenant’s financial circumstances have materially changed, tenants may now make a fresh request rent relief if:
  • the rent relief provided by the landlord under an existing agreement does not comply with the new proportionality requirements introduced by the Amending Regulations; or
  • the rent relief does not extend to 31 December 2020,

but, as discussed above, this fresh request for rent relief is not retrospective and will only apply to the period from the date that the application is made until 31 December 2020.

• Turnover: The definition of Turnover now expressly excludes JobKeeper payments (which is in keeping with the Small Business Commissioner’s position).
• Deferral of rent: If any part of the rent is deferred, a landlord cannot request payment of the deferred rent before 31 December 2020. This change is retrospective and applies to deferrals agreed between landlords and tenants prior to 29 September 2020 (which were repayable from the earlier of 30 September 2020 or the expiry of the lease). The tenant must continue to pay the deferred rent to the landlord amortised over the greater of:
  • the balance of the term of the small commercial lease; or
  • a period of not less than 24 months.
• Landlord’s financial circumstances: A landlord’s ability to take into consideration its financial ability to offer rent relief when making an offer of rent relief to tenants has been removed.
• Outgoings: The Amending Regulations now extend the existing moratorium on evictions for non-payment of rent during the relevant period (29 March 2020 to 31 December 2020) to include non-payment of outgoings for that same period.
• Disputes: Tenants may now apply to the Small Business Commissioner for a binding order in relation to rent relief in circumstances where a landlord has failed to respond to a mediation request or has not engaged in the mediation in good faith. Landlords are not afforded the same opportunity but may still initiate a lease dispute in the usual course.

Way forward

While the CTRS prescribed a process for requesting rent relief, the Amending Regulations materially change the playing field for landlords and tenants seeking to reach agreement on rent relief. Each lease will be different, so questions of what circumstances are relevant and what weight is to be given to each of the principles will need to be determined on a case by case basis. For assistance in navigating the CTRS or developing a strategy in respect of your lease or leasing portfolio, please get in touch with Shanna Livingstone.

For details of all our COVID-19 tips and updates, visit the Gadens COVID-19 Hub.

Authored by:

Shanna Livingstone, Special Counsel