The Victorian Government has now published the Commercial Tenancy Relief Scheme Regulations 2021 (“the Regulations”), providing detailed certainty to commercial landlords and tenants as to the rent relief framework announced earlier this month. Although this year’s Regulations share the same principle concepts as the Victorian regulations in 2020 and the Code, much further detail has been inserted to ensure cooperative and transparent conduct between landlords and tenants.
For example, it is now an offence under the Regulations if a landlord or tenant provides information that is false or misleading. Landlords and tenants must cooperate and act reasonably and in good faith in all discussions and actions in relation to the Regulations.
Criteria for Eligible Leases and Eligible Tenants
The Regulations apply to the protection period commencing on 28 July 2021 and ending on 15 January 2022. Landlords are only required to provide rent relief for the rent relief period – see more detail below.
An eligible lease must meet the criteria of:
- a retail or non-retail commercial lease or licence that is in effect on 28 July 2021;
- a lease of which a tenant is an eligible tenant; and
- is not one of the following exclusions:
- tenant is one of a listed corporation; or body corporate, company or corporation whose securities are listed on a stock exchange outside Australia or a subsidiary of a listed corporation; or body corporate, company or corporation whose securities are listed on a stock exchange outside Australia; OR
- leases where the premises are predominantly used for agricultural, pastoral, horticultural or farming purposes (see regulation 7 for complete detail).
An eligible tenant must meet the criteria of:
- being an entity that as at 28 July 2021 carried out business (or non-profit) in Australia; and
- being an SME entity meaning that the tenant’s annual turnover ending 30 June 2021 is less than $50 million; and
- meeting the decline in turnover test of 30% or greater.
We note that if a tenant began trading (whether or not at the premises) before 1 April 2021, the turnover test period in which the 30% reduction in turnover must be demonstrated will be at the tenant’s election of a 3 month consecutive period between 1 April 2021 and 30 September 2021, compared to the same time in 2019.
Rent Relief Time Frames & Evidentiary Requirements
A tenant under an eligible lease may request rent relief from the landlord in a similar manner as last year’s regulations including a statement, details of demonstrated reduction in turnover and offer of rent reduction that is proportionate to the decline in turnover.
Within 14 days of making such request, the tenant must provide evidentiary supporting documentation including one of the following:
- extracts from the tenant’s accounting records;
- the tenant’s business activity statements;
- statements issued by an ADI in respect of the tenant’s account;
- statement prepared by a practising accountant; AND
importantly, the tenant must also provide a statutory declaration made by the tenant stating that the tenant is eligible and the information provided is true to the best of the tenant’s knowledge and belief.
If a tenant does not provide the above information within 14 days of its request, then the tenant’s request for rent relief lapses. If the tenant allows 3 requests for rent relief to lapse, the tenant cannot make a further request for rent relief.
The landlord must offer rent relief to a tenant within 14 days of receiving the evidence required or a different time frame as agreed between the parties in writing. The rent relief will apply to the rent relief period.
- The landlord’s offer of rent relief must be in writing and at minimum, be proportional to the tenant’s decline in turnover and relate up to 100% of rent payable under the lease for the rent relief period.
- The same 50% rent free and 50% rent deferral principles apply including deferred rent must be repaid in equal amounts over the greater of the balance of the lease term and 24 months. If the payment of rent is deferred, the landlord must offer to the tenant the same deferral period as an extension to the lease term. For example, if 3 months rent is deferred then 3 months must be offered as an extension of lease term.
- The landlord’s offer should take into account any part payments of rent and any other circumstances the tenant has asked the landlord to consider.
- The landlord must consider waiving recovery of any outgoing for any part of the protection period the tenant is not able to operate their business. (the Landlord’s Offer).
Rent Relief Period
The rent relief period relates to the period in which the tenant is eligible for rent relief. Despite the protection period being from 28 July 2021 to 15 January 2022, landlords will not be required to grant rent relief from 28 July 2021 if the tenant does not meet all requirements for a valid application and provide evidences required by 30 September 2021.
- If the tenant validly applies for rent relief prior to 30 September 2021, the rent relief period for that tenant will begin on 28 July 2021.
- If the tenant validly applies after 30 September 2021, the rent relief period begins on the date of the tenant’s request for rent relief.
For example if the tenant meets all requirements and validly applies on 29 September 2021, then subject to supporting documentation indicating the decline in turnover test is valid for the period from 28 July 2021, the tenant will be eligible for relief from 28 July 2021. If the tenant applies on 1 October 2021, then they will only be eligible for relief from 1 October 2021 until the end of the protection period.
Mandatory Reassessment for Some Tenants on 31 October 2021
If a rent relief agreement has been made under this Regulation, and the date of the tenant’s request for rent relief was before 30 September 2021, and the tenant began trading before 1 April 2021, then the tenant must provide updated financial information of continuing turnover (and statutory declaration) to the landlord by the reassessment date being 31 October 2021.
The landlord may make an adjustment from the reassessment date based on the tenant’s change in turnover. If a tenant does not provide the information required by the reassessment date if required by the Regulation, the tenant’s rent relief agreement no longer applies to the extent it relates to any waiver of rent from the reassessment date unless one of the exceptions in regulation 29(6) apply. See regulation 29 for further detail.
Freezes to Rent Deferrals under Existing Agreements
If rent payable under a 2020 lease was deferred under the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020, and the eligible lease is the same as the 2020 lease and the tenant has requested for rent relief under these Regulations, then the landlord must not request payment of any part of deferred rent until after 15 January 2022.
Tenant Deemed Acceptance
On the date that is 15 days after the tenant receives the Landlord’s Offer, the tenant is deemed to have accepted the offer and a rent relief agreement is deemed to have been made if:
- the landlord and the tenant have not agreed; and
- the tenant has not referred the matter to mediation; and
- the landlord’s offer of rent relief meets the minimum requirements set out in the Regulations.
If a rent relief agreement has been made and subsequently the financial circumstances of a tenant under an eligible lease materially change, the tenant may make a further request to the landlord for rent relief. Any new rent relief agreement applies in substitution for the original rent relief agreement.
Prohibitions on Landlords
A landlord under an eligible lease must not:
- evict a tenant; or
- re-enter or otherwise recover the premises; or
- have recourse to any security for that tenant;
due to non-payment of rent and outgoings if the following two criteria have been met (please note that the tenant must meet both criteria):
- 1. the tenant has made a valid request to the landlord for rent relief and the request has not lapsed; and
- 2. the tenant continues to pay a portion of rent due under the eligible lease, equal to rent due reduced by the same percentage in the tenant’s decline in turnover as set out in the tenant’s statement.
Similarly, a landlord cannot take any of the actions above if a tenant under an eligible lease reduces its opening hours or closes the premises and ceases to carry out any business at the premises during the protection period.
A landlord must not increase the rent or review the rent payable under an eligible lease during the protection period. If a review occurs during the protection period, it is voided and may never be claimed by the landlord.