The much-awaited Commercial Tenancy Relief Scheme Regulations 2021 (new Regulations) were enacted by the Victorian Parliament on 24 August 2021. A copy of the Regulations can be accessed through the following link here.
Like the previous COVID-19 2020 Regulations (old Regulations), the underlying principles of good faith and a general obligation for the landlord and tenant to cooperate and act reasonably in all discussions continue to apply in the new Regulations.
There are several distinctions between the old and new Regulations, including:
This article identifies some of the key provisions that will be of immediate interest to landlords and tenants.
In this round of rent relief, it is important for tenants and landlords to understand that there are specific dates and information required to be provided, making the process more complex. It is important for tenants to seek legal advice to ensure their application for rent relief is granted.
For landlords, you will be wanting to ensure that any applications you approve are correct and fall within the eligibility criteria.
For both tenants and landlords alike, making an error could put you in an irretrievably compromised negotiating position. In other words, the timing is critical as well as the action you take. The rules are strict and unforgiving.
An “eligible lease” is 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.
This includes new leases entered into after 28 July 2021 as a result of an extension, variation or renewal of an eligible lease on substantially the same terms as the eligible lease.
Please note, that certain classes of leases are excluded from being eligible leases e.g. agricultural lease, a lease where the tenant is a listed corporation etc.
A tenant is an “eligible tenant” if the tenant:
Certain tenants are excluded from being eligible tenants e.g. local government body, a company in liquidation and an individual which has been declared bankrupt.
A tenant satisfies the “decline in turnover test” if:
In other words, there must be a minimum of 30% decline in turnover after comparing the tenant’s turnover for the two relevant periods.
Turnover Test Period
The “turnover test period” is:
The tenant’s “comparison turnover” is the tenant’s turnover for the “relevant comparison period”.
The “relevant comparison period” is:
Note: (b) and (c) are only relevant for the purposes of mandatory reassessment of rent relief agreement pursuant to Regulation 29(2)(b) which is further discussed below.
There are specific alternative comparison turnover rules which apply in the following special circumstances:
The Victorian Small Business Commission has provided a useful summary table setting out the comparison and turnover periods that is applicable depending on when the tenant started trading which can be accessed here.
If you fall under any of the above special circumstances, we strongly recommend that you seek tailored legal advice in relation to this prior to putting in any request for rent relief to the landlord.
It is interesting to note that the definition of “turnover” specifically includes all business turnover derived from online sales and State Government COVID grants received but excludes Federal Government grants.
The Rent Relief Period commences on either
and ends on 15 January 2022.
It is essential that tenant’s which are eligible for rent relief from 28 July 2021 should immediately apply for rent relief in accordance with the new Regulations and especially before 30 September 2021. PCL Lawyers can prepare and submit such applications on behalf of tenants and assist landlord which receive such applications.
Please note that a landlord must not increase the rent payable under an eligible lease, regardless of whether the tenant has requested rent relief. Any rights to a rent increase between 28 July 2021 and 15 January 2022 are voided and may never be claimed by the landlord.
Pursuant to the new Regulations, a tenant may make a request for rent relief which must be in writing and accompanied by a statement that the tenant:
Within 14 days of the request being made, the tenant must provide evidence in support of the turnover figures in its rent relief request. The documents required to be provided by the tenant are:
Importantly, the tenant’s request for relief lapses if the tenant does not provide the evidentiary requirements within 14 days and the tenant is then required to make a new rent relief request.
If a tenant allows 3 requests for rent relief to lapse, the tenant cannot make any further request for rent relief under the new Regulations.
Once the Landlord receives the tenant’s evidence in support of the rent relief request, the landlord must make the tenant an offer for rent relief in writing within 14 days which:
Deferred rent must be amortized over the balance of the lease term or 2 years, whichever is greater (and the lease is extended accordingly if there is less than 2 years remaining). The landlord cannot request deferred rent payments commence before 15 January 2022.
After a tenant receives the landlord’s rent relief offer, both parties must negotiate in good faith with a view to agreeing on the rent to apply during the rent relief period.
The landlord and tenant must reach agreement within 14 days after date on which the tenant receives the landlord’s rent relief offer.
If by the 15th day after the tenant receives a rent relief offer from the landlord:
then the tenant is deemed to have accepted the landlord’s offer and a rent relief agreement is deemed to have been made accordingly.
There is now a mandatory reassessment of all existing rent relief agreements where:
If a tenant wishes to seek reassessment of an existing rent relief agreement, it must provide certain information to the landlord prior to 31 October 2021.
We understand the new regulations and are experienced in negotiating excellent outcomes for our clients. If we can resolve the rent relief process without mediation, we do so. Where is it necessary, our team is experienced in representing landlords at mediation.
Please note: The above is not intended to be legal advice. Every circumstance is different. Always seek legal advice in relation to your individual situation.
© PCL Lawyers 2021
Marilyn Wai is a Senior Associate in the Commercial and Commercial Property Department. Marilyn studied law at Monash University and...