The Victorian Government has released Regulations introducing the Victoria Commercial Tenancy Relief Scheme (the Scheme) to ease financial hardship of commercial and retail tenants as a result of the COVID-19 pandemic.
The Scheme has similar features to last year’s rent relief regulations. and requires landlords to provide eligible tenants rent relief that is proportionate to the tenant’s decline in turnover as a result of the pandemic.
1.What is the rent relief period?
The Scheme will apply from 28 July 2021 and run until 15 January 2022.
The Scheme is retrospective which means that tenants can request rent relief to apply from 28 July 2021 as long as they provide the necessary information to their landlord before 30 September 2021.
If a tenant applies to their landlord after 30 September 2021, the rent relief period will start from the date they submit that application and continue until 15 January 2022.
2. What rent relief must the landlord offer?
If a tenant is eligible, the landlord’s rent relief offer must, at a minimum, be in proportion to the tenant’s decline turnover. For example, if turnover has fallen by 70%, the landlord must offer rent relief which is at least 70% of the current rent.
At least 50% of the rent relief offered must be a waiver of rent and the remainder can be a deferral.
3. What are the eligibility criteria?
A tenant will be eligible under the Scheme if:
a.they were party to a retail or commercial lease or licence which was in effect on 28 July 2021;
b. they are a SME entity (see below SME entity requirements) that, as at 28 July 2021, operated a business in Australia;
c.they satisfy the decline in turnover test under the Scheme (at least 30% decline in turnover – more on this below); and
d.they are not an excluded tenant. These include:
- local governing bodies;
- Australian government agencies;
- tenants under external administration (e.g. the tenant is subject to a trustee in bankruptcy or a liquidator); and
- tenants who are affiliated with another entity where the combined turnover of the tenant and the other entity exceed $50million.
4. What is a SME entity?
A tenant will be a SME entity if its annual turnover for the 2021 financial year was less than $50 million or, if it hasn’t traded for the entire 2021 financial year, its turnover for the 2022 financial year is likely to be less than $50million.
5. How do tenants satisfy the ‘decline in turnover test’?
If tenants’ turnover for the turnover test period falls short of their comparison turnover period by at least 30%.
6.What periods do tenants use to compare their turnover?
The Scheme uses a ‘turnover test period’ and ‘comparison turnover period’ to refer to the turnover periods that tenants must use to calculate decline in turnover.
How a tenant compares their turnover depends on when their business started trading. We have set these out in the table below.
If a tenant started trading after 1 April 2019, they will have to use an alternative comparison method and will need to bring this to the landlord’s attention in their request for rent relief.
| When the tenant started trading | Comparison Turnover Period | Turnover Test Period |
| Before 1 April 2019 | Choose 3 consecutive months between 1 April 2019 and 30 September 2019.
For example, 1 May 2019 to 31 July 2019. |
The same 3 month period in 2021.
For example, 1 May 2021 to 31 July 2021 |
| Alternative Comparison Methods | ||
| Between 1 April 2019 and 31 March 2020 | Calculate the average monthly turnover from the start of trading up to 31 March 2020, then multiply by 3 to create a quarterly figure.
|
3 consecutive months between 1 April 2021 and 30 September 2021. |
| Between 1 April 2020 and 31 March 2021 | Calculate the average monthly turnover from the start of trading up to 31 March 2020, then multiply by 3 to create a quarterly figure.
|
3 consecutive months between 1 April 2021 and 30 September 2021. |
| From 1 April 2021 to now | Calculate the average daily turnover from the start of trading up to 31 July 2021, then multiply by 92 to create a quarterly figure.
|
The parties will agree to use the current quarterly figure or equivalent. |
7. What does turnover include?
Turnover is the GST turnover of the business and includes the following types of income:
- the proceeds of sales of goods and/or services (including online sales);
- commission income;
- repair and service income;
- rent, leasing and hiring income;
- government bounties and subsidies;
- interest, royalties and dividends;
- other operating income; and
- payments received by the tenant during the relevant period, such as the Victorian Government COVID-19 Business Support Fund payments.
8. What does turnover NOT include?
Turnover will not include GST or any financial assistance received from the Commonwealth in response to the COVID-19 pandemic (e.g. a business grant or support package).
9.What do tenants need to provide landlords to show a decline in turnover?
Tenants must provide at least one of the following:
a. extracts from the tenant’s accounting records; or
b. the tenant’s BAS that relates to the relevant turnover test period; or
c. statements issued by the tenant’s bank relating to their bank account; or
d. a statement prepared by a practicing accountant.
10. How does a tenant request rent relief from the landlord?
Tenants must make a written request to their landlord for rent relief which also must include the following information:
a. a statement that they are an eligible tenant;
b. a statement that they satisfy the decline in turnover test, which includes setting out:
- the tenant’s turnover for the turnover test period, including which turnover test the tenant have used (as set out in the above table);
- if an alternative comparison turnover method was used, how the comparison turnover was calculated; and
- the decline in turnover (with proof as set out above);
- the reduction in rent the tenant is requesting;
- any other circumstances they would like the landlord to consider in making an offer of rent relief; and
- a statutory declaration stating that they are an eligible tenant and that the information they have provided is true to the best of their knowledge.
The requirement to provide a statutory declaration is a feature of the Scheme which was not necessary under last year’s rent relief regulations. If a tenant does not provide the statutory declaration to the landlord within 14 days of submitting their written request, then that request will lapse. Requests may lapse 3 times before the tenant loses its protection under the Scheme for rent relief.
11. How long do tenants have to accept the landlord’s offer for rent relief?
A tenant will have 15 days to come to an agreement after receiving the landlord’s offer of rent relief.
If an agreement has not been reached in that period and the tenant has not applied to the Victorian Small Business Commission for mediation, then the tenant will be deemed to have accepted the landlord’s offer.
We recommend tenants and landlord diarise these dates.
12. Can tenants make more than one request for rent relief?
Yes – if parties have reached an agreement for rent relief and the tenant’s financial circumstances have materially changed since that agreement.
13. What is the ‘Mandatory Check in Point’?
If a tenant requests rent relief before 30 September 2021 and they commenced trading before 1 April 2021, then they must complete a reassessment with the landlord by 31 October 2021.
]This will allow the landlord to consider whether tenant’s financial circumstances have changed and rent relief should be adjusted.
A tenant must provide the landlord with the following information for the reassessment before 31 October 2021:
a. turnover for the quarter ending 30 September 2021;
b. either:
- if they started trading before 1 April 2019, their turnover for the quarter ending 30 September 2019; or
- if they started trading between 1 April 2019 and 30 March 2021, their turnover for the quarter ending 30 June 2021.
c. the change in turnover; and
d. a statutory declaration stating that they are an eligible tenant and that the information provided is true to the best of their knowledge.
14. Can landlords increase rent during the relief period?
No, not until 15 January 2022.
15. Does a tenant still need to pay outgoings to the landlord?
Yes, however a landlord must consider waiving recovery of any outgoings or other expenses for any part of the relief period where tenants cannot operate their business at the premises.
If a supplier reduces any outgoings charged to the landlord (e.g. council, water or energy providers), the landlord must pass this reduction on to the tenant.
16. Will the term of the lease be extended?
Yes – but only if any of the rent has been deferred as a result of rent relief.
The landlord must offer a tenant an extension of lease (on the same terms) for a period equal to the length of time which their rent is deferred. This is to allow the lease to continue running while tenants are repaying deferred rent.
17. Can the landlord evict a tenant for not paying rent during the relief period?
No – not if:
a. the tenant is an eligible tenant;
b. the lease commenced before 28 July 2021; and
c. the tenant has made a written request to the landlord for rent relief in accordance with the Scheme.
The above does not prevent a landlord from evicting a tenant for circumstances which are not protected under the Scheme. For example, where a tenant has not paid rent owing before 28 July 2021, or does not pay rent under a rent relief agreement.