COVID-19 | Victorian Commercial Tenancy Relief 3.0 – Victoria introduces extended rent relief for small business

2 February 2022
John Nicolas, Partner, Brisbane Lui Scipioni, Partner, Melbourne Archie Smith, Partner, Sydney Alexandra Walker, Partner, Melbourne Jasmina Bradonjic, Special Counsel, Melbourne Shanna Livingstone, Special Counsel, Melbourne Rebecca Sharman, Special Counsel, Melbourne

In response to the ongoing impact of COVID-19, the Victorian Government has now released the Commercial Tenancy Relief Scheme Regulations 2022 (Vic) (2022 Regulations) which extends the entitlement to rent relief and related protections for certain small businesses.

What has changed?

Our previous publication on the Commercial Tenancy Relief Scheme Regulations 2021 (2021 Regulations) can be found here.

The 2022 Regulations are substantively similar to the 2021 Regulations however certain key differences are evident. Those differences are summarised below:

1. Protection Period

The 2022 Regulations apply retrospectively for the protection period of 16 January 2022 to 15 March 2022.

2. Eligibility

The criteria for an eligible lease remains largely unchanged.

However, where previously an eligible tenant referred to an SME with an annual turnover less than $50 million, the 2022 Regulations rename this concept as a small entity and reduce the annual turnover threshold to $10 million. Criteria for an eligible tenant is otherwise unchanged.

An eligible lease is now a retail lease or commercial lease or licence:

  • that was in effect on 16 January 2022;
  • under which the tenant is an eligible tenant; and
  • that is not excluded under the prescribed exclusions (e.g. an agricultural lease or a lease to a listed corporation).

Extensions, renewals and variations on substantially the same terms are still considered a continuation of an existing lease.

A tenant is now an eligible tenant if the tenant:

  • is a small entity (the tenant’s turnover for the financial year ending 30 June 2021 must be less than $10 million or, if the tenant did not carry on business for the whole of that financial year, its turnover for the financial year ending 30 June 2022 must be likely to be less than $10 million);
  • carried on business in Australia as at 16 January 2022;
  • satisfies the decline in turnover test; and
  • is not excluded under the prescribed exclusions (e.g. a company in liquidation or an Australian Government agency).

The definition of turnover and the grouping provisions relevant to assessing the $10 million turnover threshold both remain unchanged from the 2021 Regulations.

3. Decline in Turnover Test

The decline in turnover test still requires a tenant to demonstrate a decline in turnover of 30% or more but the period for assessing this decline has changed.

In most cases the turnover test period is now, either:

  • the month of January 2022, to be compared against the tenant’s turnover for the month of January 2020; or
  • if the tenant’s business temporarily ceased trading in January 2020 for a week or more due to an event or circumstances outside the ordinary course of the tenant’s business and the tenant’s business resumed trading before 16 January 2022, the month of December 2021, to be compared against the tenant’s turnover for the month of December 2019.

However, similar alternative comparison turnover methods still apply in cases where tenants have insufficient comparison turnover or where intervening factors have impacted turnover.

4. Deferred Rent

Payment of deferred rent (including any agreement to defer rent made under the 2021 Regulations or its 2020 predecessor) cannot occur before 16 March 2022 unless agreed otherwise by the parties.

The duration for payment of deferred rent remains unchanged, being payable over the longer of 24 months and the balance of the current term.

5. Reassessment

The requirement for a subsequent reassessment and adjustment of rent relief based on a change to the decline in turnover no longer applies.

Applying for relief

Eligible tenants must make a new request for rent relief under the 2022 Regulations, following the same two-step process applicable under the 2021 Regulations.

Unlike the 2021 Regulations there is no longer a fixed deadline (previously 30 September 2021) enabling tenants to secure retrospective relief. In view of this omission, tenants are encouraged to apply early however past experience suggests that a retrospective application will be valid.

What remains unchanged?

Additional key entitlements and obligations remain unchanged from the 2021 Regulations:

  • a landlord must provide continued rent relief for the protection period in line with the reduction in turnover demonstrated under the decline in turnover test;
  • at least half of the rent relief must be granted in the form of a rent waiver;
  • a landlord must offer to extend the lease term for the period equal to the period in which rent is deferred;
  • a rent review that falls within the protection period is voided and may never be claimed;
  • the moratorium on eviction for failure to pay rent or outgoings in the protection period still applies, subject to the same conditions set out in the 2021 Regulations;
  • a tenant under an eligible lease may reduce or cease trade during the protection period without breaching the lease (and that tenant need not satisfy the decline in turnover test to qualify for this protection); and
  • the same dispute resolution process applies.

How can we help?

Our team is ready to advise and assist those dealing with rent relief negotiations and disputes. We invite you to contact our office should you require any assistance.

For details of all our COVID-19 tips and updates, visit the Gadens COVID-19 Hub.

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Authored by: 

Alexandra Walker, Partner

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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