Further protections available under the new Victorian Commercial Tenancy Relief Scheme Regulations 2021

With the onset of the Delta strain of COVID-19 and numerous lockdowns imposed on Victorians this year, the Victorian Commercial Tenancy Relief Scheme Regulations 2021 (CTRS Regulations) were published by the Victorian Government on 24 August 2021.

The CTRS Regulations aim to provide tenants of eligible commercial and retail leases further protections against adverse impacts of the recent lockdowns and restrictions imposed by the Victorian Government in 2021.

The CTRS Regulations apply from 28 July 2021 to 15 January 2022 (Protection Period).

Here is a brief summary of key features within the CTRS Regulations, including eligibility, rent relief and deferrals, and mandatory reassessments.

Eligibility

The CTRS Regulations apply to tenants who:

• occupy premises under an eligible lease

• have turnover or projected turnover of under $50 million

• satisfy a decline in turnover test, being a decline of at least 30% in turnover (or 15% if the entity is a charitable organisation) when compared using one of the various methods prescribed in the CTRS Regulations, and

• are not excluded by the CTRS Regulations. Currently excluded tenants include major Australian banks, government entities and subsidiaries of those entities.

Eligible leases are leases that are in effect on 28 July 2021. Extensions, renewals or variations on substantially the same terms and conditions of such leases will be considered eligible. Agricultural leases and leases to companies listed on the Australian Securities Exchange (and subsidiaries) are excluded.

Unlike rent relief legislation recently introduced in New South Wales, eligibility under the CTRS Regulations are not tied to an entity’s eligibility to receive a government grant or relief scheme related to COVID-19.

Decline in turnover test

The CTRS Regulations introduce a decline in turnover test to assist tenants in determining their eligibility and the extent of their decline in turnover.

Generally, a tenant must measure its turnover in any three-month period (between 1 April 2021 and 30 September 2021) against the equivalent three-month comparison period in 2019.

There are also numerous alternative methods in determining decline in turnover and the tenant may elect to rely on these alternative measures if they qualify. These apply in a variety of scenarios including tenants with irregular turnovers, tenants subject to corporate reconstruction and even sole traders who were sick and unable to trade.

Notably, the CTRS Regulations introduce a specific alternative method to determine a tenant’s decline in turnover in circumstances where a tenant increased their turnover in 2020.

Rent relief and deferrals

The CTRS Regulations provide for a more robust process for requesting and negotiating rent relief when compared to previous iterations of similar regulations.

A tenant must submit a request for rent relief in writing to the landlord, which must contain:

• an express statement that it is an eligible tenant

• the tenant’s methodology in satisfying the decline in turnover test

• the extent of the tenant’s decline in turnover, and

• other pertinent information that it would like the landlord to consider.

A tenant requesting rent relief must continue to pay rent reduced by the rate of its decline in turnover stipulated in its request to the landlord.

Once a tenant makes the above request it must also provide evidence to support its request to the landlord, accompanied by statutory declarations that the information is true and correct. Once a tenant requests for rent relief, the evidence above must be provided to the landlord within 14 days. If the tenant fails to do so, that request is deemed to have lapsed.

A tenant who fails to provide evidence required under the CTRS Regulations three times will no longer be able to seek rent relief against a landlord.

Upon receipt of a request for rent relief and accompanying evidence from a tenant, a landlord must offer rent relief where:

• at least 50% of relieved rent must be waived, and

• the quantum of rent relief must be at a minimum proportional to the tenant’s decline in turnover.

When making an offer for rent relief, the landlord must also take into account any partial payments of rent already made by the tenant and any other circumstances that the tenant has provided in its request for rent relief.

Parties are required to negotiate in good faith and adhere to strict timeframes in offering rent relief and coming to an agreement.

The CTRS Regulations also introduce a deeming provision—If a landlord makes an offer compliant with the CTRS Regulations and the tenant does not accept that offer within 14 days of receipt or refers the matter to the Small Business Commissioner for a mediation, it is deemed the tenant accepted the landlord’s offer.

Rent relief must relate to the whole or part of the Protection Period, depending on when the tenant makes a request for rent relief.

Where rent is to be deferred a tenant is only required to commence repayment after 15 January 2022, and such deferrals must be equally amortised over the greater of the balance of the term of the eligible lease, or 24 months (unless otherwise agreed).

Rent deferrals granted under previous iterations of rent relief regulations in Victoria will be further deferred until after 15 January 2022 (unless otherwise agreed).

Mandatory reassessments

The CTRS Regulations provide for a new mechanism to reassess certain rent relief agreements entered into between a landlord and tenant. The CTRS Regulations allow for certain rent relief agreements to be amended on and from 31 October 2021 to reflect more current turnover figures.

If a tenant’s turnover figures as a result of the reassessment differ from the initial turnover figures provided by a tenant to the landlord, the rent relief agreement will be deemed to be adjusted for the remainder of the rent relief period so that it is based on the tenant’s reassessment instead.

Tenants who are required to comply with this specific regulation must provide updated turnover information to their landlord by 31 October 2021, accompanied by statutory declarations. Failure to do so may result in the cancellation of any waiver of rent agreed between a tenant and landlord on and from 31 October 2021.

No rent increases

The CTRS Regulations provide that rent increases during the Protection Period are void.

Similarities to previous regulations

Similar to the previous iterations of rent relief regulations in Victoria:

• A tenant may request subsequent relief if its financial circumstances materially change.

• If rent is deferred a landlord must extend an eligible lease for the same period of time that rent is deferred (unless otherwise agreed).

• Landlords must consider waiving outgoings and reducing provisions of base building services while a tenant is unable to trade.

• Reductions in rates and taxes should be passed on to the tenant.

• A tenant is not in breach for closing or changing its trading hours.

• Dispute resolution processes apply.

If you have any enquiries in relation to the CTRS Regulations and its application to your commercial or retail lease, please do not hesitate to contact Wayne Kaplan and Calvin Tay.