The Victorian Government has reintroduced the Commercial Tenancy Relief Scheme (Scheme) in an amended format to help small to medium sized businesses with an annual turnover of less than $50 million that have experienced a fall in turnover of more than 30% during COVID-19. The Scheme applies from 28 July 2021 to 15 January 2022.

How it works

Eligible business owners can obtain rent relief proportionate to their fall in turnover owing to COVID-19. For example, if you are a business with a decline in turnover of 40%, then you may be entitled to rent relief equal to 40% of the total rent you are otherwise obliged to pay. At least half of the rent relief must be given in the form of a waiver, with the remainder deferred until 15 January 2022.

The rent deferred under the relief agreement is only required to be paid after 15 January 2022 and must be amortised over the greater of the balance of the term of the eligible lease or 24 months.

Eligibility

You must have a retail lease or a non-retail commercial lease that was in effect on 28 July 2021.

The lease must not be one that is associated with agriculture. It must also not be one where the tenant is a listed corporation or a subsidiary of a listed corporation.

The Tenant must be a small to medium enterprise, as defined based on a turnover of less than $50 million per annum. If the Tenant hasn’t traded for a whole year, then the likely turnover for the year ended 30 June is what is relevant. For the purposes of turnover, it is all the revenue for the tenant entity as a whole that is relevant, and not the turnover specific to the lease premises.

The Tenant must have a decline in turnover of at least 30% within the relevant turnover test period in order to be eligible, which can be calculated as follows:

Date Tenant started tradingTurnover test periodComparison period
Before 1 April 2019Three consecutive months between 1 April 2021 and 30 September 2021Same three consecutive months in 2019
1 April 2019 – 31 March 2020Three consecutive months between 1 April 2021 and 30 September 2021Average monthly turnover of trading up to 31 March 2020, multiplied by 3 (3-month average)
1 April 2020 – 31 March 2021Three consecutive months between 1 April 2021 and 30 September 2021Average monthly turnover of trading up to 31 July 2021, multiplied by 3 (3-month average)
On or after 1 April 2021Parties must negotiate in good faith to agree on turnover test periodThe tenant’s total turnover to 31 July 2021, divided by the number of days trade, multiplied by 92

Application

  1. If you are a Tenant

In order to backdate the relief to 28 July 2021, you must submit a written statement, as well as the supporting evidence to your Landlord by 30 September 2021. For applications made after this date, the relief period starts from the date of the application.

Your written statement must specify your eligibility to receive the relief, as outlined above. In your statement, you must also state the turnover for the turnover test period and the comparison period that was used to calculate the decline in turnover, as well as what the decline in turnover is. You must also specify the reduction in rent that you seek under the Scheme. You may also wish to provide information on additional circumstances that may be relevant to your application.

You must provide supporting evidence to your Landlord within 14 days of making the request. You must provide evidence of turnover figures which may include an extraction from accounting statements, bank statements, business activity statements or a statement from a practising accountant. You must also provide a statutory declaration confirming that you are an eligible tenant and that the information provided is true.

Tenants are advised to consult their accountants in preparing their application.

  1. If you are a Landlord

The Landlord must provide a response to the Tenant’s request for relief in writing within 14 days of receiving the supporting evidence.

The Scheme includes a deemed acceptance provision, in that there is deemed acceptance of the Tenant’s request unless the Landlord has rejected the amount of relief requested and an agreement is not reached within the 14 days after the request being made, the offer has not met the minimum requirements or if the Tenant has referred the matter to the Victorian Small Business Commissioner.

Ongoing requirements

A mandatory reassessment of the rent relief agreement must take place on 31 October 2021 where a Tenant has requested this relief prior to 1 October 2021, and the Tenant commenced trading prior to 1 April 2021. If the Tenant requested the rent relief on or after 1 October 2021, then this date will be adjusted accordingly.

The Tenant must provide to its Landlord details of its turnover for the turnover test period, the comparison turnover and the Tenant’s change in turnover. If the change in turnover differs from the decline in turnover on which the rent relief was based, then from 31 October 2021, the rent relief agreement will be adjusted to align with the change in turnover. The Tenant must also provide a statutory declaration with this information.

If the Tenant fails to provide this information for reassessment, then the rent relief will cease to apply.

Other factors to consider

Tenants are advised to prepare detailed cash flow forecast reports to ensure business viability and the business’s ability to pay the deferred rent after 15 January 2022.

Landlords may not increase rent between the period of 28 July 2021 and 15 January 2022. Nor can they evict a Tenant or have recourse to any security provided by the Tenant.

If the Landlord has an agreement with its Tenant under an earlier scheme, such as an existing deferral agreement, then the repayment of the existing deferred rent payable is suspended from 28 July 2021 until 15 January 2022. No interest or costs are recoverable because of the further deferral of the rent repayable under that existing deferral agreement.

The Victorian Government is also assisting Landlords in providing relief to their Tenants by offering land tax relief of up to 25%, as well as hardship payments as part of a $20million hardship fund to eligible landlords. More information on this is yet to be released.

 


 

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This article published by Danaher Moulton is for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision.