Victorian Commercial Tenancy Relief 2.0 – Here we go again!

25 August 2021
Lui Scipioni, Partner, Melbourne Alexandra Walker, Partner, Melbourne Patrick Walsh, Partner, Melbourne Jasmina Bradonjic, Special Counsel, Melbourne Shanna Livingstone, Special Counsel, Melbourne Penny Telfer, Special Counsel, Melbourne

On 24 August 2021 the Victorian Government released the Commercial Tenancy Relief Scheme Regulations 2021 (2021 Regulations). Unlike its 2020 predecessor, the 2021 Regulations are complex and include a number of key differences.

The brief summary below does not lend itself well to the complexity that will be faced by landlords and tenants alike over the coming weeks as the industry tries to make sense of it all. Parties are encouraged to review the 2021 Regulations to assist in navigating agreements and disputes.

To view the 2021 Regulations click here.

Protection period

The 2021 Regulations apply to the protection period of 28 July 2021 to 15 January 2022.

Eligibility

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

  • that was in effect on 28 July 2021;
  • 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 will be considered a continuation of an existing lease.

A tenant is an eligible tenant if the tenant:

  • is an SME (i.e. its turnover for the financial year ending 30 June 2021 was less than $50 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 is likely to be less than $50 million);
  • carried on business in Australia as at 28 July 2021;
  • 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).

Grouping provisions for assessing the $50 million turnover threshold remain, but turnover is now expressed to include:

  • internet sales for the group; and
  • any grant or financial assistance payment provided by the Victorian government to mitigate the effects of the COVID-19 pandemic,

but excludes any Commonwealth grants and relief packages to mitigate the effects of COVID-19 (e.g. JobKeeper). The 2021 Regulations are silent on other State government grants and relief packages.

Decline in turnover

Broadly speaking, a tenant will satisfy the decline in turnover test if the tenant’s turnover in the turnover test period declined by 30% or more from its comparison turnover. This requires an examination of the tenant’s turnover for the turnover test period against the comparison turnover. The definition of those terms differs depending on when the tenant began trading. The Victorian Small Business Commission has released a useful guidance table on the comparison and turnover periods, to review that table click here.

For a tenant who commenced business prior to 1 April 2019, the tenant may select the turnover test period from any three (3) consecutive whole calendar months between 1 April 2021 and 30 September 2021 being compared against the three (3) corresponding months in 2019.

There are also a number of alternative comparison turnover methods set out in the 2021 Regulations, including in respect of a tenant who commenced business after 1 April 2019. The alternative methods are generally reflective of the JobKeeper eligibility requirements under its 2020 predecessor.

Request for rent relief

Changes to the procedure for requesting rent relief apply.

A request for rent relief must be made in writing and accompanied by a statement that the tenant is an eligible tenant and satisfies the decline in turnover test (including setting out working calculations) together with any other circumstances the tenant would like the landlord to consider. There is no prescribed list of ‘other circumstances’ or direction on how much weight is to be given to them.

Having made a request, a tenant must, within 14 days, provide information which evidences the turnover figures along with a statutory declaration stating that the information is true. Penalties apply for providing false or misleading information.

If a tenant fails to provide such evidence within 14 days, the request will lapse. A tenant may make a further request, however if a tenant allows three (3) requests to lapse, the tenant cannot make a further request after that.

On receipt of a tenant’s request and the necessary evidence, the landlord must offer rent relief within 14 days. The 2021 Regulations mirror the 2020 regulations in relation to what a landlord’s offer must contain at least half in waiver and the balance in deferral and an offer to extend the lease term.

The rent relief offer must relate to the rent relief period which is determined as follows:

  • if a tenant makes a compliant request and provides all evidence on or before 30 September 2021, the rent relief period will be 28 July 2021 to 15 January 2022; or
  • if a tenant makes a compliant request and provides all evidence on a date after 30 September 2021, the rent relief period will be from that date until 15 January 2022.

Unlike its 2020 predecessor, the 2021 Regulations contain a deeming provision. That is, if 14 days after a tenant receives a landlord’s offer of rent relief:

  • the landlord and tenant do not reach agreement on the rent relief;
  • the tenant has not referred the matter to the Small Business Commission; and
  • the landlord’s offer complies with the minimum requirements,

then the tenant will be deemed to have accepted the landlord’s offer and a rent relief agreement will be deemed to have been made on the 15th day.

Reassessment of rent relief agreement

Where:

  • a rent relief agreement has been made;
  • the request for rent relief was made on or before 30 September 2021; and
  • the tenant commenced trade prior to 1 April 2021,

the tenant must, prior to 31 October 2021, provide certain reassessment information (similar to its initial request) which information must be supported by a statutory declaration.

If the reassessment turnover figures differ from the initial turnover figures provided, the rent relief agreement will be deemed to be adjusted for the remainder of the rent relief period so that it is instead based on the tenant’s change in turnover.

Subject to some exceptions (sickness, injury or natural disaster preventing trade) if a tenant does not provide the reassessment information prior to 31 October 2021, the waiver portion of the rent relief agreement ceases to apply from 31 October 2021.

Extension of the term

Like its 2020 predecessor, the 2021 Regulations provide that if the payment of any rent is deferred, the landlord must offer the tenant an extension to the term of the lease equivalent to the period for which rent is deferred.

Payment of deferred rent

A landlord must not request payment of any part of the deferred rent until after 15 January 2022. Interestingly, the 2021 Regulations also provide that if rent was deferred under an agreement made under the 2020 regulations, a landlord may not request payment of any part of that deferred rent until after 15 January 2022.

Payment of Rent, Trading and Rent Reviews

In a substantial change, any rent review that falls within the protection period is voided and may never be claimed. The rent review can no longer be deferred.

A tenant under an eligible lease will also receive protection from evictions for failure to pay rent or outgoings in the protection period but only:

  • if the tenant has made a compliant request and continues to pay the portion of rent due reduced by the same percentage as the tenant’s decline in turnover; or
  • if a rent relief agreement has been reached, the tenant has paid rent and outgoings in accordance with that rent relief agreement.

There are some exceptions for sickness, injury or natural disaster preventing trade, none of which are further defined or clarified.

This is a marked difference from the 2020 regulations which afforded a tenant protection against eviction during the rent relief period regardless of whether or not the tenant paid the rent and outgoings.

A tenant under an eligible lease may reduce or cease trade during the protection period without breaching the lease. In another departure from the 2020 regulations, a tenant need not satisfy the decline in turnover test to qualify for this protection.

Dispute resolution

The dispute resolution process works much in the same way as it did under the 2020 regulations. The ability of the Small Business Commission to issue a binding order is repeated, but only applies in limited circumstances and only a tenant can seek a binding order. There is no ability for a landlord to seek a binding order from the Small Business Commission.

The Victorian Civil and Administrative Tribunal continues to have power to determine disputes under the 2021 Regulations. In making an order in a proceeding relating to an eligible lease dispute, the Tribunal may have regard to (amongst other things) any evidence of the conduct of the landlord and the tenant with respect to any rent relief under the 2020 regulations.

The 2021 Regulations otherwise confirm the previous position that the landlord and tenant must co-operate, act reasonably and in good faith.

Hold on, it’s likely to be a bumpy ride!

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Authored by:

Lui Scipioni, Partner
Alexandra Walker, Partner
Jasmina Bradonjic, Special Counsel

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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