On 3 August 2021, the Victorian Government introduced into Parliament the Commercial Tenancy Relief Scheme Bill 2021 (Vic). The Bill reintroduces the Commercial Tenancy Relief Scheme (Scheme), which had previously expired on 28 March 2021.
The Commercial Tenancy Relief Scheme Act 2021 (the Act) came into operation on 10 August 2021. The Act provides a framework for the new Scheme, authorising the Governor in Council to make regulations to implement the new Scheme on the recommendation of the Minister for Small Business. The Commercial Tenancy Relief Scheme Regulations 2021 (the Regulations) were released on 24 August 2021.
The new Scheme will have retrospective effect from 28 July 2021. The Regulations will continue in force until 30 October 2022.
Eligibility for the Scheme
The new Scheme applies to eligible leases. An eligible lease is a retail lease or a non-retail commercial lease or licence:
- That was in effect as at 28 July 2021;
- Under which the tenant is an eligible tenant; and
- Under which the premises are not used wholly or predominately used for agricultural purposes.
An eligible tenant:
- Is an entity whose annual turnover was less than $50 million for the year ending 30 June 2021, or for businesses that were not trading for the financial year ending 30 June 2021, an entity whose annual turnover is likely to be less than $50 million for the year ending 30 June 2022; and
- Has experienced a decline in turnover of at least 30%; and
- Is not a listed corporation, a corporation whose securities are listed on a stock exchange outside Australia, or a subsidiary of such corporations.
To determine whether a tenant’s turnover has declined by at least 30%, the tenant’s turnover for the turnover test period is compared with the tenant’s comparison turnover.
For tenants that began trading before 1 April 2021, the turnover test period is a consecutive 3 month period between 1 April 2021 and 30 September 2021 that is selected by the tenant. The tenant’s comparison turnover is the tenant’s turnover during the 3 month period in 2019 that corresponds with the 3 month period selected by the tenant as the turnover test period.
For tenants that began trading on or after 1 April 2021, the landlord and tenant must negotiate in good faith to agree on a turnover test period.
Where the tenant began trading on or after 1 April 2019, the tenant’s comparison turnover is determined in accordance with the formulae set out in regulation 16.
Special arrangements have also been made for calculation of a tenant’s comparison turnover where the tenant’s turnover was affected by:
- the acquisition or disposal of part of the tenant’s business;
- a restructure of the tenant’s business;
- drought or natural disaster; or
- sickness, injury or leave for a sole trader or small partnership.
Further alternative comparison turnover provisions apply for tenants who have a substantial increase in turnover, tenants who temporarily ceased trading and businesses that have irregular turnover. Where more than one alternative comparison turnover amount applies to a tenant, the tenant may choose which amount they would like to apply for the purpose of calculating their decline in turnover.
Key features of the new Scheme
Tenants under an eligible lease are afforded two main protections under the Regulations.
Mandatory rent relief
Landlords must offer rent relief to their tenants if the tenant makes a request for rent relief. The landlord’s offer of rent relief must:
- at a minimum, be proportional to the tenant’s decline in turnover; and
- provide at least 50% of the rent relief by way of waiver.
Where a rent relief agreement has been made and the tenant requested rent relief on or before 30 September 2021, the tenant’s turnover must be reassessed. If any part of the rent relief agreement is based on the tenant’s decline in turnover, the rent relief agreement will be adjusted to be based on the tenant’s change in turnover. The tenant’s change in turnover is the difference between the tenant’s turnover for the turnover test period and the tenant’s comparison turnover, expressed as a percentage of the tenant’s comparison turnover.
Where rental payments are deferred pursuant to the rent relief agreement, landlords must offer tenants an extension of the lease term for the period for which rent is deferred. Payments of deferred rent must not be requested by a landlord until after 15 January 2022, and must be paid over a period of at least 24 months.
Where rent under a 2020 lease was deferred under the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licence’s) Regulations 2020 and the eligible lease is the same as the 2020 lease or in substance a renewal, extension or replacement of the 2020 lease, the tenant may also request rent relief from the landlord under the Regulations. The landlord must not request payment of any rent deferred under the 2020 lease until after 15 January 2022.
Interest or other fees or charges are not payable with respect to rent deferred under a rent relief agreement.
A landlord may not evict a tenant and a tenant will not be in breach of a provision of their lease relating to payment of rent or outgoings if the tenant does not pay rent or outgoings as required under the lease and one of the following applies:
- before a rent relief agreement is made, the tenant makes a request to the landlord for rent relief and continues to pay the amount of rent that is due under the proposed rent relief agreement;
- where a rent relief agreement has been made, the tenant pays rent and outgoings in accordance with the agreement;
- the tenant is unable to trade due to sickness or injury affecting the tenant, its officers or employees; or
- the tenant is unable to trade as a result of a natural disaster affecting the tenant or the leased premises.
The Regulations also provide a number of other protections for tenants under an eligible lease:
- a prohibition on rent increases between 28 July 2021 and 15 January 2022;
- landlords must consider waiving recovery of any outgoings or other expenses payable by a tenant where the tenant is unable to operate their business at the premises;
- any reduction in outgoings must be passed on to the tenant; and
- tenants will not be in breach of their lease and must not be evicted from the premises if the tenant reduces the opening hours of their business or closes the premises and ceases to carry out business at the premises between 28 July 2021 and 15 January 2022. This protection applies to an eligible lease even where the tenant does not satisfy the decline in turnover test.
Disputes under the Regulations may be referred to the Small Business Commission for mediation.
Complying with the new Scheme
As the new Scheme will apply retrospectively from the date of its announcement on 28 July 2021, Victorian commercial landlords and tenants to whom the new Scheme applies should begin considering how they wish to negotiate rent relief.
If you have any questions on the new Scheme, or would like assistance with the negotiation and drafting of appropriate variations to agreements to reflect rent relief arrangements, please phone or email the key contacts below.