Commercial Tenancies Rent Relief

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Commercial Tenancies Rent Relief

Updated 25 August 2021

On 24 August 2021 the Commercial Tenancy Relief Scheme Regulations 2021 were updated offering a wider eligibility catchment.
In simple terms, if you have been previously ineligible for rent relief, you may now be in a position to receive financial reprieve.

For detailed information refer to the Victorian Small Business Commission website.

Check out our summary which aims to convey the effect of the Regulations.

ELIGIBILITY

Eligible Lease

The Regulations apply to an “Eligible Lease". An Eligible Lease is a lease that:

was in effect on 28 July 2021 (with a specific note that a renewed, varied or extended lease on substantially the same terms will be treated as having been in effect on that date);
is not subject to any of the exclusions (notably agricultural leases or leases where the tenant is a listed corporation); and
under which the tenant is an ‘Eligible Tenant’.

Eligible Tenant

To qualify as an Eligible Tenant a tenant must:

be an SME entity (with turnover in 2020/21 of less than $50,000,000);
have, as at 28 July 2021, carried on business (or been a non-profit body or deductible gift recipient);
not be subject to any of the numerous exclusions (relevantly a company in liquidation or a bankrupt individual etc); and
satisfy the Decline in Turnover Test

DECLINE IN TURNOVER TEST

The Decline in Turnover Test will be satisfied if the tenant’s turnover in the Turnover Test Period was at least 30% lower than its Comparison Turnover. To determine this you will need to identify three terms:

Turnover;
Turnover Test Period; and
Comparison Turnover

Turnover is defined in the same way as GST turnover, varied to specifically include state government COVID grants and to exclude federal government grants.
The Turnover Test Period and Comparison Turnover will depend on the day the tenant commenced trade and is best set out by reference to the following table:

Date the tenant first commenced business (whether from the premises or otherwise)	Turnover Test Period	Comparison Turnover
Prior to 1 April 2019	The tenant's choice of any three consecutive whole calendar months between 1 April 2021 and 30 September 2021	The three corresponding months in 2019
1 April 2019 – 31 March 2020	The tenant's choice of any three consecutive whole calendar months between 1 April 2021 and 30 September 2021	The sum of the tenant’s turnover for each whole month of trade to 31 March 2020, divided by the number of whole months, multiplied by 3 (so effectively 3-month average turnover to 31 March 2020)
1 April 2020 – 31 March 2021	The tenant's choice of any three consecutive whole calendar months between 1 April 2021 and 30 September 2021	The sum of the tenant’s turnover for each whole month of trade to 31 July 2021, divided by the number of whole months, multiplied by 3 (so effectively 3-month average turnover to 31 July 2021)
After 31 March 2021	A period agreed by landlord and tenant following good faith negotiations	The tenant’s total turnover to 31 July 2021, divided by the number of days trade, multiplied by 92

There are various special rules, exclusions and also ‘alternative’ comparison tests (similar to jobkeeper approach), which may need to be considered depending on your situation.

PROCESS FOR OBTAINING RELIEF

The details are contained in the legislation, and there is the focus on the tenants and landlords negotiating directly, but to summarise briefly:

Tenant makes a request in writing to the landlord (incorporating eligibility etc outlined above)
Tenant needs to provide evidence to support the request (timing rules apply)
Landlord is required to make an offer of rent relief (see below)

Rent Relief Offer

The landlord is required to make an offer of rent relief which includes:

at a minimum be proportional to the tenant’s decline in turnover;
provide that no less than 50% of the rent relief is in the form of waiver (with the balance to be deferred); and
take into account the “other circumstances” that the tenant wanted the landlord to take into consideration – as an example this may include outgoings, which there is no specific requirement for the landlords on this.
The offer must relate to the “rent relief period” determined as follows:

if the tenant makes its application (and provides evidence) on or before 30 September 2021 the rent relief period will be 28 July 2021 – 15 January 2022;
if the tenant makes its application and provides evidence AFTER 30 September 2021 the rent relief period will be from the date of the tenant’s request until 15 January 2022 (NOT RECOMMENDED as you will lose more than 9 weeks of relief!).

If any rent is deferred it is taken to be payable in equal instalments commencing not earlier than 15 January 2022 and running for two years or the balance of the length of the term (whichever is greater). Similarly to last year if 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 (there is no obligation on a tenant to accept the offer and the landlord’s rent relief offer can’t be contingent on the tenant agreeing to the longer term).

Next Steps

Within 14 days of making its request, the tenant must provide information to the landlord "that evidences the turnover figures contained in" the request.
That information must include at least one of the following:

extracts from the tenant's accounting records;
the tenant's business activity statements;
the tenant's bank statements; or
a statement prepared by a practising accountant.

The tenant must also include a statutory declaration, made by the tenant (or an office of a corporate tenant) stating that the information and evidence provided is true (to the best of the tenant's knowledge and belief).

If you, like many of us, do not feel comfortable with sharing your sensitive financial information with the landlord, please contact our office to request preparation of an Accountants Statement outlining the key information required by the landlord as evidence of Decline in Turnover.

Questions?

The Regulations are long, and complicated. We’ve done our best to keep it as straightforward as possible and to break it down into manageable chunks here.
We will provide more updates and information as it comes to hand.