In response to the financial hardship faced by commercial tenants as a result the coronavirus (COVID-19) pandemic, the Victorian Government announced the reintroduction of the Commercial Tenancy Relief Scheme (the Scheme).
The Scheme is set out in the Commercial Tenancy Relief Scheme Regulations 2021 (Regulations). The Regulations, and therefore the Rent Relief Scheme, applies retrospectively from 28 July 2021 and continues until 15 January 2022 (Protection Period).
An eligible tenant can apply for rent relief during the Protection Period. They need to make a compliant rent relief request to its landlord on or before 30 September 2021. Additionally, failure to make an application by this date will mean that relief will only commence from the date of the tenant’s request.
The Scheme applies to tenants and landlords under eligible leases. An eligible lease is a retail lease or a non-retail commercial lease or licence:
- that was in effect as at 28 July 2021;
- under which the tenant is an eligible tenant; and
- is not subject to any exclusions provided for in the Regulations. (i.e. an agricultural lease or a lease to a listed corporation).
An eligible tenant is a tenant that:
- has carried on a business in Australia as at 28 July 2021. (Including a non-profit body or a deductible gift recipient);
- is an SME entity (i.e. its an annual turnover for the 2020/2021 financial year was less than $50 million. Or, if the tenant did not carry on business for the whole of that financial year, its turnover for the financial year ending 30 June 2022 is likely to be less than $50 million);
- satisfies the decline in turnover test; and
- is not subject to any exclusions provided for in the Regulations (i.e. a company in liquidation or an Australian Government agency).
Decline in turnover test
To satisfy the decline in turnover test, an eligible tenant will need to demonstrate that its turnover in the turnover test period declined by 30% or more from its comparison turnover (or 15% or more for an ACNC-registered charity or a school).
The meaning of turnover test period and comparison turnover depends on the date the tenant began trading. Hence, a guide of the comparison and turnover periods are helpfully summarised by the Victorian Small Business Commission and can be reviewed here.
Additional protections for tenants
Eligible tenants are afforded two key additional protections under the Regulations:
- Freeze on rent increases
Landlords under an eligible lease are prohibited from increasing the rent payable during the Protection Period. This is irrespective of whether the tenant has requested rent relief under the Scheme.
An exception to this prohibition is if the landlord and the tenant under an eligible lease agree in writing that the rent can be increased during the Protection Period.
A rent increase does not apply to an eligible lease to the extent that it provides for rent to be determined by reference to the volume of trade of a tenant’s business.
2. Eviction ban
If a tenant has followed the process under the Scheme for requesting rent relief, a landlord must not:
- evict or attempt to evict the tenant;
- re-enter or recover the premises;
- call on any security relating to non-payment of rent; or
- attempt to do any of the above,
because of non-payment of rent or outgoings during the Protection Period.
What does the Scheme mean for landlords?
Obligations under the Scheme
If an eligible tenant makes a compliant request for rent relief, commercial landlords are required to give that tenant rent relief that is in proportion to the tenant’s fall in turnover due to COVID-19 and is made up of a minimum of 50% waiver.
Support available to landlords
Furthermore, small landlords who are providing rent relief will be eligible to apply for payments as part of a $20 million Commercial Landlord Hardship Fund. Eligible landlords that waive rent for their tenants between 28 July 2021 and 15 January 2022 can apply for grants of up to $6,000 per tenancy. In cases of acute hardship, small landlords may be eligible for grants of up to $10,000 per tenancy.
In addition, to support commercial landlords who are waiving rent for their tenants as part of the Scheme, the Victorian Government will provide land tax relief of up to 25%.
The Regulations are complex and lengthy, and landlords and tenants should be mindful of their respective rights and obligations. If you would like to discuss the Regulations and how they affect you, please contact our team for more information.