Commercial Tenancy Relief Scheme available in Victoria

Relief for commercial tenants struggling with rent payments in Victoria is on its way. The Scheme will help small and medium-sized businesses with an annual turnover of less than $50 million that have experienced a loss in turnover of more than 30% during the pandemic.

Eligibility

The key requirements are:-

• There must be a lease in effect as at 28 July 2021; and

• There must be an Eligible Tenant, being:

o An SME entity with 2020/21 turnover of less than $50 million;

o In business and not excluded (such as due to liquidation); and

o That satisfies the Decline in Turnover Test.

The Decline in Turnover Test is complex, but in broad terms means turnover for the tenant has dropped at least 30% in the Turnover Test Period. Taking a tenant that commenced business prior to 1 April 2019, the tenant can choose 3 consecutive calendar months between 1 April 2021 and 30 September 2021 and compare turnover with the same months in 2019 to assess the decline of 30% or more.

Possible relief

An Eligible Tenant is entitled to request rent relief from a landlord, which must then respond with an offer to the Eligible Tenant within 14 days. The Request must be in writing, stating that the tenant is an Eligible Tenant and providing details of how the tenant meets the Decline in Turnover Test. It may also set out “other circumstances” that the tenant would like the landlord to consider in making the Offer. The Eligible Tenant must provide evidence in support of the Request within 14 days. The Offer from the landlord must:-

• be at least proportional to the Eligible Tenant’s decline in turnover;

• propose that at least 50% of rent is waived;

• propose that remaining rent is deferred, with deferred rent payable in equal instalments;

• offer the tenant an extension of term equal to the period for which rent is deferred; and

• take into account any “other circumstances” that the tenant asked to be considered.

The rent relief period will be 28 July 2021 – 15 January 2022 provided the tenant makes the Request and provides evidence before 30 September 2021. Otherwise from application date.

Good faith negotiations

After provision of the Offer the parties must negotiate in good faith with a view to agreeing on rent relief. Importantly, the tenant only has 14 days from receipt of the Offer to either accept it, or refer the matter to the Small Business Commissioner, or the tenant is deemed to have accepted the Offer.

Payment of rental

Eligible Tenants under an Eligible Lease will not be in breach if they do not pay rent or outgoings:-

• provided:

o the tenant has made a Request and provided evidence; and

o the tenant continues to pay rent as a proportion of actual turnover; or

• the tenant complies with any agreed relief agreement; or

• the tenant is unable to trade due to sickness, injury or natural disaster (which might possibly include the COVID-19 pandemic)

Other

• Limited mechanisms exist for reassessment of relief if tenant circumstances change.

• Landlords cannot increase rent at any time between 28 July 2021 and 15 January 2022. This includes automatic or fixed rental increases, which are “voided and may never be claimed”. It seems market rent reviews can still occur, and accordingly rent can decrease but not increase.

• A tenant under an Eligible Lease will not be in breach for reducing opening hours or ceasing to carry on business at the premises.

• It is an offence for either party to provide false or misleading information.

• A landlord cannot use an indemnity against a guarantor to defeat the effect of the Regulations.

Landlord support

Landlords found to be doing the right thing by tenants will not be left out. Land tax relief of up to 25 per cent will be provided by the Victorian Government, in addition to any previous relief, with the support worth up to $100 million.

Further, small landlords who can demonstrate acute hardship will be eligible to apply for payments as part of a $20 million hardship fund.

Further information about the Commercial Tenancy Relief Scheme can be found here vsbc.vic.gov.au.

This is not legal advice, and you should obtain specific advice on your particular circumstances and eligibility.

Date published 27 Aug 2021