On 28 July 2021 the Victorian Government announced the reintroduction of the Commercial Tenancy Relief Scheme that affords protection to tenants affected by the COVID-19 pandemic. Under the scheme, landlords are obliged to provide rent relief to eligible tenants that have experienced the requisite decline in turnover.
Regulations came into effect this week, setting 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 28 July 2021 to 15 January 2022 and affords protection to eligible leases that were in effect on 28 July 2021.
Who is eligible for relief?
Rent relief is only available to tenants that are small and medium businesses with an annual turnover of less than $50 million and which have experienced a decline in turnover of 30% or more. Relief is also available to most ACNC-registered charities that have experienced a decline in turnover of 15% or more.
These principles should be familiar to most, coming straight from the JobKeeper rules that applied throughout 2020. To satisfy the decline in turnover test, tenants will need to compare their turnover for a consecutive 3-month period between 1 April 2021 and 30 September 2021 with the corresponding comparison period in 2019. Like JobKeeper, alternative tests are available to entities where there is not an appropriate comparison period in 2019.
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 15 January 2022, at which time the amount outstanding will be added to the amount deferred under the new rent relief 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 state 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 January 2022 until the end of the lease term or over a period of two years, whichever is greater.
Applications (including supporting evidence) made by 30 September 2021 will be eligible for rent relief backdated to apply from 28 July 2021 to 15 January 2022. The rent relief period for applications made on or after 1 October 2021 will run from the date the application is made until 15 January 2022.
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 provide for a mandatory reassessment of rent relief as at 31 October 2021 for businesses that commenced trading prior to 1 April 2021 and which made a request for rent relief on or before 30 September 2021.
The re-assessment is based on the tenant’s turnover for the quarter ended 30 September 2021. If the re-assessment results in a change in turnover, which is any difference between the decline in turnover percentage used for the initial request for relief and the decline in turnover percentage based on the quarter ended 30 September, the amount of rent relief provided to the tenant must be adjusted from 31 October onwards.
A failure to submit evidence of the re-assessment may result in the rent waiver being removed. However, there will be no impact on deferrals.
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 15 January 2022 regardless of whether or not the tenant has requested rent relief. 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
Support is being provided to assist small landlords who provide rent relief to their tenants and who can demonstrate ‘acute hardship’ as a result of giving rent relief. While the details are yet to be released, the previous scheme was limited, providing grants of up to $3,000 for landlords with less than $3m in taxable landholdings.
The government has also announced that landlords who provide rent relief to their tenants under the new scheme will be eligible for land tax relief of up to 25% in respect of the relevant landholdings. This land tax relief will be in addition to any previous land tax relief provided to the landlord. We are currently awaiting further details to be published by the State Revenue Office in relation to the eligibility criteria and application process for the new round of land tax relief.
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.