COVID-19 rent relief is now available for eligible tenants in Victoria under the Commercial Tenancy Relief Scheme Regulations 2021, effective as of 24 August 2021. The legislation affects many commercial lease agreements, and landlords and tenants are urged to begin negotiations immediately to avoid being shut out of rent relief. Parties to commercial leases are encouraged to seek professional legal advice about their rights and obligations under the Scheme, as the legislation can be difficult to understand. However, this article provides a summary of key provisions in the Scheme to inform your commercial lease negotiations.
Is my lease covered by the new rent relief scheme?
The Scheme covers ‘eligible leases’, which are leases that:
- were in effect on 28 July 2021;
- involve ‘eligible tenants’; and
- are not excluded from the Scheme.
Excluded leases include agricultural leases and leases involving listed corporations as tenants.
Who is an ‘eligible tenant’ under the new rent relief scheme?
An ‘eligible tenant’ is one which:
- is a small or medium-sized business (SME) with an annual turnover of less than $50 million;
- has carried on business, or been a non-profit body or a deductible gift recipient as at 28 July 2021;
- satisfies the ‘decline in turnover’ test; and
- is not excluded from the Scheme.
What is the ‘decline in turnover’ test?
Generally, the ‘decline in turnover’ test is satisfied if eligible tenants have experienced a loss in turnover of 30 per cent or more due to the pandemic. Tenants can choose three consecutive months between 1 April and 30 September 2021 to compare to their turnover in the same three months of 2019.
Notably, the new Scheme provides several alternative turnover tests to assess eligibility, depending on business circumstances. This includes alternate tests for when businesses have temporarily ceased trading, been restructured, and affected by drought or natural disasters.
What amount of rent relief is available?
Eligible commercial tenants will receive rent relief proportional to their reduction in turnover. For example, a business with a turnover of 60 per cent of pre-pandemic income can only be charged 60 per cent of its rent. At least half of the remaining rent must be waived, with the rest to be deferred.
How do I obtain rent relief as an eligible tenant?
1. Request relief from landlord
Tenants under an ‘eligible lease’ may in writing request rent relief from the landlord. The request must be accompanied by a statement from the tenant stating that they:
- are an eligible tenant; and
- satisfy the ‘decline in turnover’ test.
Tenants may also wish to include any other circumstances which may be relevant for the landlord in their written request.
2. Provide supporting evidence
Tenants must provide evidence supporting their request for rent relief within 14 days of making the request. This includes:
- evidence of turnover figures within the request; and
- a statutory declaration stating that the information is true.
Turnover figures must be evidenced by at least one of the following:
- extracts from the tenant’s accounting records;
- the tenant’s business activity statements (BAS);
- the tenant’s bank statements; or
- a statement prepared by an accountant.
Importantly, tenants failing to provide the required evidence within 14 days will not receive rent relief as per the request. While tenants can make a further request, if three requests lapse because of failing to provide required evidence, they will not be able to seek any further rent relief.
What are the requirements for making an offer of rent relief as a landlord?
Landlords must make a written offer of rent relief within 14 days of receiving supporting evidence of the request. The offer must:
- be at least proportional to the tenant’s decline in turnover;
- provide that at least half of the rent relief is waived, with the remainder to be deferred;
- take into account any other circumstances which the tenant wished to have considered in their request for rent relief.
Making rent relief requests and providing evidence before 30 September 2021
Eligible tenants should note the importance of 30 September 2021. The date of making rent relief requests and providing evidence will affect the period of rent relief as follows:
- Applications and evidence provided on or before 30 September 2021: The rent relief period will be 28 July 2021 – 15 January 2022.
- Applications and evidence provided after 30 September 2021: The rent relief period will be from the date of request until 15 January 2022. This means that tenants applying for rent relief and providing evidence after 30 September will lose more than 9 weeks of rent relief.
Negotiating rent relief and coming to agreement
After the landlord provides an offer of rent relief, parties must negotiate in good faith with a view to agree. Notably, the tenant is deemed to have accepted the landlord’s offer if:
- the agreement is not reached within 14 days of the offer being made;
- the landlord’s offer met the minimum requirements; and
- the tenant did not refer the matter to the Small Business Commissioner for assistance within 14 days of the offer being made.
What benefits are in place for landlords?
The Victorian Government will provide land tax relief of up to 25 per cent on top of any previous relief to support commercial landlords, with support worth to up to $100 million. Small landlords who can show acute hardship are also eligible to apply for payments as part of a $20 million hardship fund.
What should I do next?
The scheme operates on a timely basis, and parties to commercial leases are urged to begin negotiations immediately to avoid being shut out of rent relief.
- Eligible tenants should aim to request rent relief and provide evidence before 30 September 2021 to receive as much rent relief as possible.
- Commercial landlords and tenants may wish to obtain professional legal advice to inform their lease negotiations and ensure compliance with the Scheme.