On 1 February 2022, the Victorian Government introduced new regulations under the Commercial Tenancy Relief Scheme to provide continued support to small businesses experiencing financial hardship as a result of the ongoing COVID-19 pandemic. Under the scheme, landlords are obliged to provide rent relief to eligible tenants that have experienced the requisite decline in turnover.
The Regulations set out the minimum rent relief that must be offered to eligible tenants and how that relief must be calculated. Tenants may provide a letter from a practising accountant to evidence their decline in turnover, which needs to be measured in accordance with the turnover rules used for the JobKeeper Payments scheme.
The new Commercial Tenancy Relief Scheme will operate from 16 January 2022 to15 March 2022 and affords protection to eligible leases that were in effect on 16 January 2022. This means there will be no break in protection and supports between the previous and extended schemes where a tenant is eligible under the extended scheme.
Who is eligible for relief?
Rent relief is only available under the extended scheme to tenants that are small businesses with an annual turnover of less than $10 million and which have experienced a decline in turnover of 30% or more due to COVID-19. Relief is also available to most ACNC-registered charities that have experienced a decline in turnover of 15% or more.
Commercial tenants will need to demonstrate their decline in turnover by comparing January 2022 to January 2020, or December 2021 if the tenant stopped trading for a week or more during January 2020 and started trading again before 16 January 2022.
How does this scheme relate to any previous rent relief?
If the tenant is already repaying deferred rent or has an existing agreement with the landlord arising from the first rent relief scheme, the existing deferred rent will be frozen until 16 March 2022, at which time the amount outstanding will be added to the amount deferred under the new rent relief scheme.
A landlord and tenant can continue with a previous rent relief agreement after 15 January 2022 where they both agree to do so. If they do not agree and a tenant wants rent relief they will need to make a new request while continuing to pay the amount of rent agreed under the previous scheme.
How is turnover determined?
For the purposes of the scheme, turnover is based on the GST concept of current GST turnover, as defined in the GST Act but varied to include supplies between group members and any Victorian government COVID-19 support grants received by the tenant. There are also special rules for deductible gift recipients and other ACNC-registered charities.
How do tenants apply for rent relief?
Eligible tenants must make a written request to their landlord for relief, which must be accompanied by a statement that they are an eligible tenant and satisfy the decline in turnover test. Within 14 days of making a request, the tenant must provide a statutory declaration confirming that they are an eligible tenant and that the information provided is true to the best of their knowledge. The statutory declaration must be accompanied by at least one of the following to evidence their decline in turnover: (1) accounting records, (2) Business Activity Statements, (3) bank statements, or (4) a statement prepared by a practising accountant.
What are the landlord’s obligations?
Landlords are mandated to provide a written offer for rent relief within 14 days of receiving a request from an eligible tenant.
At a minimum, the rent relief offered must be proportional to a tenant’s decline in turnover. For example, a business with a decline in turnover of 50% must be offered rent relief of at least 50% for the relevant rent relief period. At least half of any rent relief must be in the form of a waiver, with the remainder being deferred. Any rent deferred will be payable in equal instalments commencing from 16 March 2022 until the end of the lease term or over a period of two years, whichever is greater.
Landlords are also required to offer an extension to the existing lease term equal to the period for which the rent is deferred.
Where an agreement is not reached within 14 days of an offer being made, a tenant will be deemed to have accepted a landlord’s offer of relief if:
- The landlord’s offer meets the requirements set out above; and
- The tenant has not referred the matter to the Small Business Commissioner.
Although eligibility for rent relief is determined by a one-time test, the regulations allow a tenant may make a further request to the landlord where their financial circumstances materially change.
Protections under the scheme
An eligible tenant cannot be evicted without the landlord obtaining a direction from the Small Business Commissioner. An eligible tenant will be afforded protection if:
- They have made a request for rent relief and continue to pay rent in proportion to their decline in turnover;
- A rent relief agreement has been reached; or
- They are unable to trade due to sickness, injury or natural disaster.
A restriction on rent increases will remain in place until 16 March 2022, unless the landlord and tenant agree in writing that the regulation preventing a rent increase does not apply to their lease. This restriction does not apply to an eligible lease to the extent that it provides for rent to be determined by reference to the volume of trade of a tenant’s business.
Further, if an eligible lease called for a review of rent during the protection period that would result in an increase in rent, the review is deemed void.
What if you cannot reach an agreement?
The Small Business Commissioner will once again have the power to conduct mediations and issue binding orders in the event landlords and tenants cannot agree to new leasing arrangements.
Support for landlords
The government has announced an additional $20 million fund to support landlords who provide rent relief to their tenants and who can demonstrate hardship as a result of giving rent relief. While the details are yet to be released, the previous scheme provided grants of up to $6,000 per eligible tenancy to eligible small landlords. In cases where landlords were experiencing ‘acute hardship’ because of a rent waiver agreement, the grant was extended to a maximum $10,000 per eligible tenancy.
Landlords who provided rent relief to their tenants under the previous scheme will also be eligible for land tax relief of up to 25% in respect of the relevant landholdings and this is in addition to any previous land tax relief provided to the landlord. Landlords have until 30 April 2022 to apply for the land tax reduction and deferral for the period 28 July to 15 January 2022.
What are the next steps?
If you need assistance with the decline in turnover rules or any other aspect of the new Commercial Tenancy Relief Scheme please contact your Pitcher Partners’ representative.