Commercial tenant relief update – Victoria

The Commercial Tenancy Relief Scheme Regulations 2022 (Regulations) have been released, providing relief for eligible tenants from 16 January 2022 to 15 March 2022.

Eligibility

Tenants who are ‘small entities’ may be eligible. A $10m turnover threshold applies, which is based on the year ended 30 June 2021 in most cases. This is lower than the $50m threshold that applied in earlier periods.

Consistent with Regulations applicable to earlier periods, eligibility for the new Regulations is determined based on a comparison of the tenant’s turnover for two periods.

In most cases, the periods to be compared are the months of January 2022 and January 2020. However alternative periods can be used in limited circumstances.

Business tenants need to demonstrate a 30% decline in turnover and ACNC registered charities (with some exceptions) need to demonstrate a 15% decline in turnover.

Process

The process for agreeing rent relief is outlined below.

1. Tenant determines their eligibility
2. Tenant applies for relief in writing, providing a statement including:

• the turnover for the test period (usually January 2022)
• the turnover for the comparison period (usually January 2020)
• if an alternative comparison period is used, how the comparison turnover was calculated (applies in limited circumstances)
• the decline in turnover
• the reduction in rent that would satisfy the minimum requirements, and
• any other circumstances the tenant would like the landlord to consider

3. Within 14 days of applying for relief in writing, the tenant must provide evidence in the form of either:

• extracts from their accounting records, or
• business Activity Statements, or
• bank statements, or
• a statement from a practicing accountant

Failure to do the above within 14 days will result in a lapsed application. A tenant can allow up to 3 applications to lapse before they can no longer apply.

4. Within 14 days of providing evidence, the landlord must provide an offer for relief complying with the following minimum requirements:

• a reduction in rent payable for the relief period (likely 2 months) proportional to the tenant’s reduction in turnover
• at least half the reduction needs to be a waiver. The balance would be a deferral
• an extension of the lease term needs to be offered for the same amount of time that any rent is deferred (likely to be 3 months)

5. Landlord and tenant to negotiate and agree on rent relief
6. If within 15 days of the landlord providing an offer, the landlord and tenant have not reached agreement and the matter has not been referred to the Victorian Small Business Commissioner for mediation, then the tenant is deemed to have accepted the landlord’s offer
7. Agreement should be documented.

Deferred rent

Unless otherwise agreed, deferred rent is to be repaid in equal instalments from 16 March 2022 over the greater of the remaining term of the lease or 24 months.

For eligible tenants, repayment of any rent previously deferred in an earlier period under previous Regulations should be paused and restarted from 16 March 2022.

Other considerations

There are various protections offered within the Regulations, including for example that rent cannot be increased for eligible tenants during the relief period.

Landlords will be prohibited from evicting tenants without first undertaking mediation through the Victorian Small Business Commission.

Tenants can apply for subsequent rent relief if an agreement has previously been made and their financial circumstances materially change.

Commercial landlords that provide rent relief to eligible tenants may be eligible to receive support through the $20 million Commercial Landlord Hardship Fund.

Next steps

Landlords and tenants are required and encouraged to negotiate in good faith. Affected parties should seek advice to ensure that they are operating within the requirements of the Regulations.

How SW can help

SW has property experts who can assist affected landlords and tenants with determining eligibility including calculating the decline in turnover, required rent relief and understanding the process.

Reach out to one of our tax and property experts below for a conversation about your circumstances.

Contributors

Blake Rodgers

E [email protected]