The Victorian Government has introduced a new round of rent and other relief for some eligible commercial and retail tenants, as well as some support for complying landlords. This scheme is the next chapter in the ongoing Federal and State Government support structures which commenced with the original Mandatory Code of Conduct introduced by the Federal Government in March 2020.
The Regulations are detailed and address numerous specific situations, so it isn’t intended to address them all, but we point out some notable features.
Commencement and application deadline
Although the legislation has only just been passed, the scheme will be backdated to operate and provide relief and certain protections for tenants from 28 July 2021 until 15 January 2022 (called the “protection period”), subject to various conditions and thresholds.
Rent relief will be backdated to 28 July 2021 provided that a compliant request for relief is made by 30 September 2021. Otherwise, the relief will only be available from the date of the application. Therefore, if you are a business owner and believe you may satisfy the criteria, you should act quickly as you will not be entitled to receive relief unless you comply strictly with the conditions. If you have already commenced discussions already but have not made a formal complying application, you should get advice to make sure your request complies.
Who is eligible?
To be eligible, the following requirements must be satisfied:
- The tenant must be either a not-for-profit body or a business in Australia whose turnover is less than $50million.
- Broadly (with some exceptions and specific criteria), the eligible tenant must have suffered a decline of at least 30 % in turnover during the “turnover test period”, when compared with the tenant’s turnover during the “comparison period”.
- The “turnover test period” is any period of 3 consecutive months between 1 April 2021 and 30 September 2021.
- The “comparison period” is the corresponding 3 month period in 2019.
- “Turnover” has the same meaning as under the GST Act (i.e. the value of all supplies made on which GST must be reported, including online sales), but also includes all Victorian government Covid support (but does not include Federal government support including Jobkeeper).
- Note that there are some special and alternative rules for certain businesses and situations that are a little more complex. They relate to things like:
- New businesses which have commenced trading after the relevant test or comparison period;
- Where there was an acquisition or disposal of part of a tenant’s business or a restructure of the business after the start of the comparison period;
- Businesses whose turnover is irregular (other than seasonal/cyclic businesses);
- Sole traders and small partnerships whose turnover was affected by the sole trader or partner not working due to sickness or leave during the relevant comparison period;
- Businesses who temporarily ceased trading during the comparison period;
- Where the tenant has experienced a surge (increase) in turnover in the period prior to the test period.
What is the relief?
- Proportionate reduction in rent – where the tenant makes a complying request in accordance with the below process, the landlord must offer to reduce the rent by an amount proportional to the reduction in the tenant’s revenue. At least half of the reduction must be a waiver of rent (i.e. forgiven and forever lost by the landlord) and the rest of the reduction can be deferred. The term of the lease is extended by the period by which rent is deferred.
- Protection from action by the landlord – provided the tenant has made a complying request AND pays the portion of rent that reflects the reduction in turnover asserted by the tenant (or, where there is a reduced rent agreement already in place, complies with that relief agreement), the landlord cannot take action against the tenant for non-payment of the rent or outgoings under the lease during the protection period. However, the landlord retains rights in relation to any other breaches.
Procedure
- In order to qualify, the tenant must make a complying request to the landlord in writing, and provide all of the required relevant accompanying information, including details of the tenant’s decline in turnover calculation. Note that these requirements are specific and detailed. Any tenant who wants to make such a request should obtain advice before making the request.
- The tenant must then provide evidence of the turnover within 14 days (and if the tenant fails to do so, the request lapses).
- On receipt of a complying request, the landlord must make the offer of reduced rent, following which the parties must negotiate in good faith. If the tenant does not agree, it must refer the matter to the Small Business Commission within 15 days of receiving the landlord’s offer or the tenant will be deemed to have accepted the landlord’s offer.
- Reassessment – the tenant must provide updated turnover information before 31 October 2021 which essentially allows the parties to reassess the relief to reflect the change in turnover for the quarter to 30 September 2021 compared to the earlier comparison period. If the tenant fails to provide this information by 31 October 2021, it may lose the benefit of any rent waiver from that date.
Other Protections available to tenants under an eligible lease
Eligible tenants are also entitled to the following protections during the protection period, whether or not a request for rent relief has been made:
- Where the tenant has closed the business or reduced trading hours, the landlord may not evict or exercise any rights in relation to that closure or reduction in hours, whether or not the tenant has suffered a decline in revenue.
- The landlord may not increase the rent.
- Where the landlord’s liability for an outgoing has been reduced, the tenant must not be required to pay more than its share of that reduced amount.
Our Corporate and Business Team at Nevett Ford frequently act for landlords and tenants in negotiating and drafting lease and occupancy agreements. Call us on 03 9614 7111 or email melbourne@nevettford.com.au to discuss your requirements.
This article is a general guide to key provisions of the Regulations only. It is not intended to be a comprehensive summary of the Regulations, which are extensive and complicated. Readers should not rely on this article as a complete guide to the commercial tenancy relief scheme and should obtain advice on the Regulations before acting.