On 25 August 2021, the Victorian Government passed regulations to introduce the terms of a Commercial Tenancy Relief Scheme which will apply effective from 28 July 2021. The aim of the scheme is to provide a framework for landlords and tenants to negotiate together in good faith to provide rent relief for those tenants who have experienced a reduction in their turnover. The scheme is scheduled to apply until 15 January 2022.
The Commercial Tenancy Relief Scheme will apply to tenants that have turnover of less than $50M (on a grouped basis) that have experienced a reduction in their turnover of at least 30%. The reduction in turnover test is determined by the tenant as follows:
|If tenant operated business before 1 April 2019
|Tenant compares their turnover for any 3 month block between 1 April 2019 and 30 September 2019, to their turnover for the same 3 month block in 2021.
|If tenant commenced business between 1 April 2019 and 31 March 2020
|Tenant compares their average monthly turnover from when business commenced to 31 March 2020 (multiplied by 3), to their turnover in any 3 month block of turnover in the period 1 April 2021 to 30 September 2021.
|If tenant commenced business between 1 April 2020 and 31 March 2021
|Tenant compares their average monthly turnover from when business commenced to 31 July 2021 (multiplied by 3), to their turnover in any 3 month block of turnover in the period 1 April 2021 to 30 September 2021.
|If tenant commenced business on or after 1 April 2021
|Tenant compares their average daily turnover from when business commenced to 31 July 2021 (multiplied by 92), to their current quarterly turnover (as agreed between tenant and landlord).
The business should calculate its turnover in accordance with how it usually reports its turnover for GST purposes.
Similar to the turnover testing rules as applied under the JobKeeper program, the rent relief provisions allow alternative turnover tests to be applied where certain situations have occurred which impact the turnover of the business during the above comparison periods. Alternative tests can be applied where:
- There was an acquisition or disposal of the tenant’s business that impacted their turnover during the comparison period
- There was a restructure of the tenant’s business that impacted their turnover during the comparison period
- The tenant’s turnover had substantially increased in between the 2 comparison periods
- The tenant’s business has been impacted by drought or natural disaster during the comparison periods
- The tenant’s turnover is irregular and not cyclical during the comparison periods
- The tenant is a sole trader or small partnership and their turnover was impacted by sickness or leave during the comparison periods
- The tenant temporarily ceased trading during the comparison periods
If the tenant has experienced a reduction in their turnover of at least 30% using any of the abovementioned tests, the rent relief scheme provides that the tenant shall be entitled to rent relief comparable to the actual reduction in their turnover which has actually occurred. The scheme provides for rent relief in the form of rent waiver (at least 50% of rent relief) and 50% rent deferral. For example, if a business’s turnover has reduced by 40%, the tenant may request rent waiver of 20% and rent deferral of 20%.
For the amount of rent that is deferred, the rent is deferred over the remaining period of the lease or 24 months (whichever is greater).
Tenants that are eligible for the rent relief scheme are also provided with other protections under the regulations including:
- No rent increases to occur during the rent relief period
- Reductions and/or waiver of outgoings; and
- Protection from eviction
To apply for rent relief, the tenant must provide a written application to their landlord and must provide the landlord with written details of how and the method by which they have calculated their reduction in turnover, details of other relevant circumstances, and a statutory declaration that the information supplied to the landlord is true and correct. To demonstrate the reduction in turnover which has occurred, the tenant must provide their landlord with substantiating documentation which may include accounting records, BAS or a statement from their tax agent. The Victorian Small Business Commission is currently developing a template letter that can be used by the tenant to apply for rent relief.
Under the provisions, there is a mandatory review period to assess whether the circumstances of the tenant have changed since a rent relief agreement was entered into. The mandatory review requires the tenant to provide information to the landlord on their turnover for the September 2019 quarter as compared to the September 2021 quarter to determine how their turnover has changed and whether rent relief is still appropriate.
Provided a tenant makes an application to their landlord prior to 30 September 2021, the tenant is entitled to apply for retrospective rent relief from 28 July 2021. However, if the tenant makes an application to their landlord after 30 September 2021, the tenant is only entitled to apply for rent relief from the date of their application.
Tenants and landlords that cannot agree to rent relief can contact the Victorian Small Business Commission and mediation can be obtained. If mediation is unsuccessful, an order from VCAT can be applied for.
The provisions relating to commercial rent relief are lengthy and complex. Should you require further information on any of the specific details, please do not hesitate to get in touch with us via your Banks Group representative, (03) 9810 0700 or email@example.com.