The relief comes following amendments to the Retail and Other Commercial Leases (COVID-19) Amendment Regulation 2021 (NSW) (‘the Regulation’) earlier this month.

The amendments were passed on 13 August 2021 and provide greater protections to impacted lessees by reinstating National Cabinet’s Commercial Leasing Code of Conduct. The Regulation seeks to ensure that the economic impact of COVID-19 is shared by both property owners and tenants.

Combined with the land tax concessions and the newly established Commercial Landlord Hardship Fund available to property owners, the Regulation seeks to limit the economic damage of COVID-19 and maximise the number of businesses able to resume normal operation when public health orders are lifted.

What do the Regulations provide for?

Under the Regulation, property owners must negotiate rent relief agreements with eligible impacted lessees in accordance with the leasing principles in the National Code of Conduct.

Under those principles, property owners are required to offer tenants rent relief proportionate to the tenant’s decline in turnover. Waivers should make up at least 50 per cent of any rent relief provided (unless the impacted lessee agrees otherwise). Rental deferrals make up the balance.

Eligibility

In order to be eligible an ‘impacted lessee’ must:

• first qualify for the 2021 COVID-19 Microbusiness Grant, the 2021 COVID-19 Business Grant or the 2021 JobSaver Payment
• have a turnover of less than $50 million for the 2020/2021 financial year.  If the lessee is a member of a group, the turnover of the group is the relevant turnover. If the lessee is a franchisee, the turnover of the business conducted at the premises of the franchisee is the relevant turnover.  In all other cases, the turnover of the business conducted by the lessee is the relevant turnover. Turnover includes any turnover of the business and would therefore include amounts earnt from internet sales (notwithstanding the business may ordinarily operate from a shopfront), and
• have entered into their lease before 26 June 2021.

Decline in Turnover Test

The Regulation does not prescribe a specific period that parties should use to calculate decline in turnover. As such, parties are free to determine an appropriate period that works for them.

Impacted lessees should provide evidence of their decline in turnover to their property owner to help them calculate the appropriate rent reduction. Evidence could include a Business Activity Statement (BAS) or an Accountant’s Letter.

If an impacted lessee’s circumstances change, they can make a subsequent request to negotiate future rent adjustments.

For the purposes of calculating an appropriate rent reduction, payments from Government COVID-19 grants should be included as part of an impacted lessee’s turnover.

Process for agreeing rent relief

The period during which the rules apply is 13 July 2021 to 13 January 2022. Impacted lessees in financial distress and their property owners should start the process of negotiating rent relief agreements as soon as possible. Support measures will be reviewed regularly as required due to the changing environment brought about by the pandemic.

For the six-month period (July 2021 – January 2022), commercial and retail property owners cannot take certain actions against an impacted lessee (e.g. evict an impacted lessee, increase rent level) unless they have first renegotiated rent and attempted mediation.

If a lessee is asked to negotiate rent reduction, they must respond within 14 days of receiving the request, or another period if agreed by both parties.

Commercial property owners and impacted lessees must negotiate rent relief agreements by taking into consideration the following principles in National Cabinet’s Code of Conduct on commercial tenancies (unless otherwise agreed by both parties):

1. Landlords must not terminate leases for non-payment of rent
2. Impacted lessees must remain committed to the terms of their lease, subject to any amendments negotiated, and material failure to do so will forfeit additional COVID-19 protections provided to impacted lessees
3. As noted above, landlords must offer impacted lessees proportionate reductions in rent (in the form of deferrals and waivers) of up to 100 per cent of the amount ordinarily payable, in proportion to the decline in the impacted lessee’s trade.
4. Rent waivers, as opposed to deferrals, must constitute at least 50 per cent of the rent reduction provided by landlords (in negotiating this, regard must be had to the landlord’s financial ability to provide such a waiver)
5. Any rent deferral must be amortised over the balance of the lease term and for a period no less than 24 months, whichever is greater, unless otherwise agreed by the parties
6. Landlords must pass any reduction in statutory charges (e.g. land tax, council rates) to the impacted lessee
7. Landlords should seek to share any benefit received due to deferral of loan payments by a bank or otherwise with the impacted lessee in a proportionate manner
8. Landlords should, where appropriate, seek to waive recovery of any other expense (or outgoing payable) by an impacted lessee under the lease terms during the period the impacted lessee is unable to trade
9. Repayment of other (non-rent) expenses should not commence until the earlier of the COVID-19 pandemic ending (as defined by the Australian Government), or the existing lease expiring
10. Landlords must not charge fees or interest on rent or fees that are waived or deferred
11. Landlords must not draw on a impacted lessee’s security for the non-payment of rent (be this a cash bond, bank guarantee or personal security) unless agreed by the impacted lessee and landlord
12. Impacted lessees should be allowed to extend their lease for an equivalent period of any rent waiver/deferral period.
13. Landlords must freeze rent increases (except for retail leases based on turnover)
14. Landlords may not apply any prohibition or levy any penalties on impacted lessees that reduce operating hours or cease to trade during the COVID-19 pandemic.

Requirements for both parties

Commercial property owners and impacted lessees should work together to negotiate a rent relief agreement. Where parties are unable to do this, they must attend mediation through the Small Business Commission.

Interim arrangements for urgent matters involving a threatened or actual eviction, can be sought through the NSW Civil and Administrative Tribunal or the courts.
For standard matters, the Small Business Commission aims to offer a date within five weeks of application.

For urgent matters, mediation can be arranged within days. The mediator cannot impose any outcome but, if a mediation is successful, parties can enter a binding deed.
Where mediation is unsuccessful, parties can pursue action through the NSW Civil and Administrative Tribunal or the NSW civil courts.

As a result of the Regulation a landlord may not:

• try to regain possession of premises with respect to a relevant lease,
• try to terminate such a lease, or
• exercise or enforce any other right of the landlord with respect to such a lease

unless the Small Business Commissioner has first certified that mediation has failed to resolve the dispute, whilst also enunciating the reasons for the mediation being unsuccessful.

It is important that impacted parties obtain advice from their legal advisers with respect to the matters noted above to ensure their obligations and rights are appropriately dealt with as provided by the Regulation.

Landlord’s assistance/relief

Where landlords have provided rent relief to ‘impacted lessees’, they are entitled to land tax relief of an equivalent amount of their land tax liability for 2021, with the relief limited to the actual land tax liability. The relief will be a rebate for those landlords who have already paid land tax and a waiver for those landlords that have not paid their land tax. Please refer to our previous update on land tax relief for further information.

The New South Wales government is also in the process of establishing a new $40 million Hardship Fund. This Fund will provide a monthly grant of up to $3,000 for qualifying landlords who provide a rent waiver of at least the same value of the Hardship Fund grant, as well as any land tax relief that the landlord is granted.

How SW can assist

Whether you are a commercial landlord or business tenant, our experts are highly experienced in assisting with calculations of decline in turnover, eligibility assessment, the application and negotiation process.

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

Get in touch

Tony Principe

E tprincipe@sw-au.com

Helen Wicker

E hwicker@sw-au.com

Blake Rodgers

E brodgers@sw-au.com

The post NSW rent relief for COVID-19 impacted lessees appeared first on SW Accountants & Advisors.

The scheme seeks to provide rent relief to commercial tenants affected by COVID-19 and operates in a similar manner to the Regulations released in March 2020, which expired on 28 March 2021. However, there are key differences including more specific details as to how to calculate the tenant’s decline in turnover and a mandatory reassessment process which will adjust the relief percentage from 31 October 2021.

Outlined below are the key eligibility requirements, the turnover reduction calculation methodology and the processes to be followed.

Eligibility

Decline in Turnover Test

Turnover means Current GST Turnover as defined in the GST Act, with some modifications in Regulation 11.

Decline of at least 15% for ACNC registered charities (with some exclusions); or 30% for all other entities.

Turnover test, periods to compare:

• If a tenant commenced trading before 1 April 2019,
• Any consecutive 3-month period between 1 April 2021 and 30 September 2021; compared to either:

1. the equivalent period in 2019; or
2. the tenant’s chosen applicable alternative comparison periods (see table on page 4 for alternative options).

• If a tenant commenced trading after 1 April 2019, but before 1 April 2021:

1. any consecutive 3-month period between 1 April 2021 and 30 September 2021; compared to
2. the tenant’s chosen applicable alternative comparison periods (see table on page 4 for alternative options)

• If tenant commenced trading on or after 1 April 2021,

1. the period that is agreed to by negotiation between landlord and tenant; compared to
2. the tenant’s chosen applicable alternative comparison periods (see table on page 4 for alternative options)

Process for agreeing rent relief

1. Tenant assesses eligibility.
2. Tenant requests relief. A request must be in writing and include a statement from the tenant that:
   • the tenant is an eligible tenant
   • the tenant satisfies the decline in turnover test including:
   1. Turnover for the test period
   2. Turnover for the comparison period
   3. Whether an alternative comparison period used
   4. Details of the calculation of decline in turnover
   5. The decline in turnover percentage
   6. The reduction in rent that would satisfy the minimum requirements of the regulations, consistent with the proportion of decline in turnover percentage provided
   7. Any other circumstances that the tenant would like to include.
   • Within 14 days of making the request, the tenant must provide evidence of the turnover figures used including at least one of the following:
   1. Accounting record extracts
   2. Business Activity Statements
   3. Bank statements
   4. A statement prepared by a practising accountant.
      The evidence must be accompanied by a statutory declaration from the tenant.
      If a tenant fails to provide evidence within the required 14 days then the request automatically lapses.  Up to 3 requests for relief can be made, i.e. 2 more if the first lapses. If they let 3 requests lapse then the tenant cannot apply again.
3. Landlord makes offer within 14 days, unless otherwise agreed, of receiving everything required from the tenant including the request noted in 2. above, supporting evidence and the statutory declaration:
   • the offer must be for rent reduction which at a minimum is proportionate to the decline in turnover
   • at least 50% of the reduction must be a waiver and the balance can be a deferral.
4. Tenant and landlord to negotiate.
5. If no agreement is reached within 15 days of the landlord’s offer of rent relief, the tenant is deemed to have accepted the landlord’s offer unless the tenant has referred the matter to the Small Business Commissioner or the landlord’s offer does not comply with the requirements noted in 3) above.
6. Agreed position to be documented by lease variation or other agreed approach.

Rent relief period

The period commences on either:

• 28 July 2021
  • For complete and successful requests made on or before 30 September 2021
• The date of the request
  For complete and successful requests made after 30 September 2021

The period ends 15 January 2022.

Mandatory Reassessment – before 31 October

For agreements reached on or before 30 September 2021, the tenant must provide the following by 31 October 2021 for re-assessment:

• Turnover for the quarter ended 30 September 2021.
• Turnover for the comparison period being:

1. If the tenant began trading before 1 July 2019, the quarter ended 30 September 2019; or
2. If the tenant began trading between 1 July 2019 and 31 March 2021, the quarter ended 30 June 2021; or
3. An alternative test period (should be same as used for first request), including details of the comparison method.

• The percentage change in the above two periods
• Another statutory declaration.

The net percentage change is then used for the purposes of calculating rent relief from 31 October 2021.

If the tenant fails to provide the necessary information by 31 October, the rent relief agreement no longer applies to the extent that it relates to any waiver of rent from the assessment date.  That means only the deferred portion of any rent relief will continue after 31 October.

Subsequent relief

Tenants can apply for further relief if their financial circumstances materially change, following the process described above under “Process for agreeing rent relief” subheading.

Any new rent relief agreement will apply in substitution of the original agreement.

Extension of term

The landlord must offer an extension on the same terms as were in place on 28 July equivalent to the period for which rent is deferred. E.g. if 3 months rent is deferred, 3 months must be added to the term of the lease.

Deferred rent

The landlord cannot request payment until after 15 January 2022.

Deferred amount is to be paid over the greater of the remaining term of the lease, including any extension, and 24 months.

Previous deferrals

Any leases subject to rent deferrals under the previous (2020) rent relief scheme, must have the repayment of those deferrals paused and resumed after 15 January 2022.

Dispute resolution

Either party can refer a dispute to the Small Business Commissioner for mediation.

Further powers are provided to the Small Business Commissioner to make a binding order in certain circumstances.

Application can be made to VCAT for review of a binding order in certain circumstances.

Alternative comparison periods

How SW can assist

Our teams can assist commercial landlords and tenants to calculate the decline in turnover, assessing eligibility, the application and negotiation process.

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

Stephen O’Flynn

E soflynn@sw-au.com

Abi Chellapen

E achellapen@sw-au.com

Blake Rodgers

E brodgers@sw-au.com

The post VIC COVID-19 commercial rent relief appeared first on SW Accountants & Advisors.

Following a similar scheme provided in 2020, the current program provides a reduction in land tax payable for the 2021 land tax year for eligible landowners providing rent relief to tenants between 1 July 2021 and 31 December 2021. Applications will be open until 31 January 2022.

Residential landlords have the option of choosing between the land tax relief or the Residential Tenancy Support Payment of up to $1,500 per tenancy agreement if they agree to reduce rent for COVID-19 impacted tenants from 14 July 2021 to 31 December 2021. If the residential landlord has claimed the Residential Tenancy Support Payment they will be ineligible for land tax relief.

How is land tax relief calculated and provided?

• The land tax reduction will be the lesser of:
  • The amount of rent reduction provided to an eligible tenant for any period between 1 July 2021 and 31 December 2021, or
  • 100% of the 2021 land tax attributable[1] to the parcel of land leased to that tenant.
• If eligible, the land tax relief will be available in the form of:
  • A refund if 2021 land tax has already been paid in full, or
  • An offset for the amount of land tax payable if the payment has not been completed.

Landlord eligibility requirements

• Must be leasing a parcel of land to:Must have reduced the rent of the affected tenant for any period between 1 July 2021 and 31 December 2021.
  • A commercial tenant who has an annual turnover of up to $50 million and is eligible for the Micro-business COVID-19 Support Grant, the 2021 NSW Business Grant and/or the JobSaver scheme, or
  • A residential tenant who has had a reduction in household income of 25% or more due to COVID-19.
• Must have provided the rent reduction without any requirement for it to be paid back at a later date.
• Must have land tax attributable to the parcel of land leased to that tenant for 2021.

Key evidence required

For all landlords

• Details of all eligible tenants, including ABN/ACN for commercial tenants.
• Confirmation of total rent reduced or waived for the 1 July 2021 to 31 December 2021 period. Examples include:
  • Copies of tenancy agreements proving rental reduction
  • Rental ledgers
  • A letter from an accountant or property manager
  • Tenant’s financial statements

For commercial tenants

• Documentation demonstrating an annual turnover of less than $50 million in the 2021 financial year in the form of a letter from an accountant, tax return, business activity statement, or other financial statements.
• Evidence of the tenants’ eligibility to be approved for the Micro-business COVID-19 Support Grant, 2021 COVID-19 NSW Business Grant, and/or the JobSaver scheme.

For residential tenants

• Documentation demonstrating a 25% reduction in household income in the form of
  • a statement from the tenants explaining how they have been impacted by COVID-19
  • copies of written communication with the tenants
  • a letter from an employer or accountant, bank statements, payslips, or other financial statements.

How we can help

Our teams can assist both commercial and residential landlords of all sizes to review evidence documentation, financials, and provide accountant letters to ensure your application is successful. Reach out to one of our experts for a conversation about your circumstances.

Get in touch

Leo Luan

E lluan@sw-au.com

Tony Principe

E tprincipe@sw-au.com

Blake Rodgers

E brodgers@sw-au.com

Dilushi Wijesinghe

E dwjesinghe@sw-au.com

The post NSW COVID-19 land tax relief appeared first on SW Accountants & Advisors.

In this webinar recording Bessie Zhang, Rene Muller, Tom Mullarkey, Jimmy Cao and Callum Murray covered the following topics with nearly 500 attendees:

• COVID-19 impacts on financial reporting
• New Simplified Disclosure Regime (SDR) reporting and the removal of special purpose financial statements
• Accounting for leases
• ASIC update
• ACNC update
• Other regulatory changes

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The post Financial Reporting update appeared first on SW Accountants & Advisors.