July 2021 Commercial Tenancy Relief Scheme Explained

The Victorian Government is in the process of introducing a new Commercial Tenancy Relief Scheme (Scheme) to assist commercial landlords and tenants as a result of the COVID-19 pandemic.

This is welcome relief for tenants but landlords also have access to relief this time around to help offset the concessions that need to be made to tenants.

The Regulations introducing this new Scheme are imminent, but at the time of writing this article have not yet been enacted and published.

Key aspects of the new Scheme are as follows:

• it’s broadly based on the previous 2020 commercial tenancy relief scheme.
• it will apply from 28 July 2021 until 15 January 2022.
• it is available to commercial tenants with a turnover of less than $50 million.
• the tenant must demonstrate a decline in turnover of at least 30%. Special arrangements will be detailed in the Regulations for businesses which were not operating in 2019.
• as there is no current Jobkeeper, this is no longer a requirement for eligibility under the new Scheme.
• there is a one-time test for eligibility: once a tenant becomes eligible for the new Scheme, it remains eligible for the duration of the Scheme, with rent relief adjustment to occur in line with decline in turnover.
• there must be proportionate rent relief. For example, a 60% reduction in turnover will mean that:
  • the rent is reduced by 60%;
  • the landlord can only charge 40% of current rent; and
  • in relation to the reduced 60% rent, half must be waived and the other half must be deferred.
• there are free mediations for landlords and tenants through the Victorian Small Business Commissioner’s office (VSBC) where agreement for rent relief under the new Scheme cannot be reached.
• There is a ban on rent increases.
• There is a moratorium on evictions for eligible tenants without first undertaking mediation at the VSBC and obtaining a direction from the VSBC that the landlord can evict.
• The Victorian Government will provide landlords with land tax relief of up to 25%.
• “Small landlords” who can demonstrate acute hardship may apply for payments under the $20 million hardship fund, the details of which will be announced soon.

What tenants desiring rent relief should do

The procedure for applying for rent relief under the new Scheme has not yet been published.

Notwithstanding this, tenants who consider themselves to be eligible for rent relief under the new Scheme should:

1. write to the landlord or landlord’s agent advising that the tenant is eligible for rent relief under the new Scheme and intends to make a formal application once the Regulations are enacted and published; and
2. commence collating all the required financial and other documents which evidences that the tenant has suffered a decline in turnover equal to or greater than 30% after comparing the relevant 2021 and 2019 quarters specified above.

Our strongest advice is not to do this alone. We have had great success in assisting in achieving favourable outcomes under the previous rent relief scheme. These outcomes are generally not obtainable without well-informed and capable legal representation.

We act for both tenants and landlords, which is helpful to our clients. As we understand both perspectives this means that we can negotiate better outcome for the party for whom we act. From experience we can easily relay the risks and benefits associated with action, or inaction, for both parties under the scheme.

PCL Lawyers can:

• advise tenants on the new Scheme rent relief Regulations once enacted and published; and
• act on the tenant’s behalf in relation to:
• immediately corresponding with the landlord to advise of the tenant’s eligibility and intention to apply for rent relief under the new Scheme; and
• drafting and submitting the tenant’s application for rent relief once the procedure for doing this is published; and
• negotiating and documenting a rent relief agreement with the landlord; and
• applying for and attending any mediation at the VSBC where agreement for rent relief cannot be reached.

What landlords should do

Landlords should enter into good faith negotiations with their tenant, where the tenant has requested rent relief under the new Scheme and provided evidence of its eligibility to do so.

Landlords should ensure that they apply for land tax relief as soon as such applications can be made.

“Small landlords” should apply for hardship payments as soon as such applications can be made. Please note that at the time of drafting this article, the meaning of “small landlord” was not defined in any government or other commentary.

Leasing disputes that arise

PCL Lawyers can assist landlords with all the above, including negotiating rent relief with tenants, drafting and settling a rent relief agreement and representing landlords at any VSBC mediation.

Lease disputes can arise between the landlord and tenant on a variety of issues. We have helped tenants negotiate with difficult landlords and vice versa.

Preparation for mediation is necessary and representation is critical in achieving the most favourable outcome – as adjustments in your favour can amount to many thousands of dollars.

That said, the landlord / tenant relationship is ongoing and the longevity of your business premises for tenants to consider. For landlords it may impact the value of your premises and loss of income. Negotiations are best handled wisely and with sensitivity.

The VSBC process also experiences significant delays. Our lawyers have assisted many tenants and landlords resolve their leasing issues before having to attend a mediation.

We can also help if mediation is unsuccessful, and you require further legal help.

Contact one of our leasing team for further advice on how these regulations apply to you. We are experts in this space.

Support during COVID

Our legal team are here to support you with leasing issues and questions, as well as other business-related legal areas such as employment law.

We are up to date with the latest information and changes to the legislation.

Contact us today on 8397 5000 or by completing the contact form on this page for a prompt response.

About The Author - Chris Karatselios

Chris is an Accredited Commercial Law Specialist and a Partner at PCL Lawyers. Chris has approximately 30 years’ experience in commercial and property law. Chris has extensive expertise in complex...