Issued this week, the Commercial Tenant Relief Scheme Regulations 2022 (Vic) (2022 Regulations) extend the rent relief and protections for commercial and retail tenants in response to the COVID-19 pandemic.
As we expected, the 2022 Regulations are retrospective and apply from 16 January 2022 (the day after the previous 2021 Regulations ended) for three months, ending on 15 March 2022.
However, while the duration of the 2022 Regulations is brief, the 2022 Regulations now capture more recent leases, with potentially significant impacts, as set out below.
So what’s changed now?
Many of you will recall that the previous 2021 Regulations almost completely rewrote the requirements for rent relief requests and negotiations that had previously applied since early in the COVID-19 pandemic.
Mercifully, this time around, the legislative drafters have adopted ‘a light touch’ approach and stripped out redundant sections, such as the mandatory re-assessment requirement.
So what is an eligible tenant now?
Now, an eligible tenant includes:
- a tenant who carried on a business in Australia as at 16 January 2022;
- an annual turnover of less than $10 million in the financial year ending 30 June 2021; and
- had a 30% decline in turnover (as calculated below).
The annual turnover threshold has dropped from $50 million to $10 million, meaning some mid-sized businesses will no longer be eligible.
Notably, the requirement that a tenant only be in business as at 16 January 2022 will potentially capture very recent, new leases.
How is the 30% decline in turnover calculated?
Perhaps the most straightforward way to assess the 30% decline in turnover is for a tenant to compare its turnover for January 2022 against its January 2020 turnover.
However, the tenant can also elect to compare its December 2021 turnover against its January 2020 turnover if:
- during the January 2022, a tenant’s business ‘temporarily ceased trading for a week or more due to an event or circumstances outside the ordinary course of the tenant’s business’; and
- the tenant’s business resumed trading before 16 January 2022.
The tenant does not have to specify what event or circumstances caused it to temporarily cease trading. This has the potential to be interpreted very broadly.
For newer tenants who began trading on or after 1 January 2020, the comparison turnover is its average monthly turnover — calculated by taking the sum of the tenant’s turnover for each whole month after it commenced trading up to 31 January 2022, and divided by the number of whole months of trade.
Under this approach, a new tenant, only three months into its lease term, with strong turnover in November and December 2021 and a decline in January 2022 would potentially satisfy the decline in turnover test and be eligible for rent relief.
The alternative comparison options for specific circumstances remain available.
Does a tenant have to re-submit a rent relief request to the landlord?
Yes. A tenant’s rent relief request essentially mirrors the requirements of the 2021 Regulations (detailed here), except that:
- what is an ‘eligible tenant’ has changed; and
- the tenant’s for the turnover test period and comparison turnover will need to be updated.
The tenant must again provide evidence of its turnover figures and a statutory declaration within 14 days of the rent relief request. If the tenant fails to do so, then the rent relief request lapses.
Unlike before, the lapsing of the tenant’s rent relief required does not reduce the rent relief period. The rent relief period has a fixed start date of 16 January 2021.
A tenant would have to allow 3 requests for rent relief to lapse before losing its right to request rent relief.
What must the landlord offer?
Unchanged from the 2021 Regulations, the landlord must offer rent relief within 14 days of receiving the rent relief request, evidence of turnover and the statutory declaration, unless otherwise agreed.
Again, the landlord’s offer must be proportional to the decline in turnover and provide that no less than 50% of the rent relief offers be in the form of a waiver of rent, unless otherwise agreed.
Tenant’s deemed acceptance still applies
If, 15 days after receiving the landlord’s offer of rent relief:
- there is no rent relief agreement;
- the tenant has not referred the matter to the Small Business Commission; and
- the landlord’s offer comply with the minimum requirements for a landlord offer;
then the tenant is deemed to have accepted the offer.
Deferred rent
Unless otherwise agreed, any deferred rent is repayable over the greater of:
- the balance of the lease term; and
- 24 months.
So long as the tenant makes a rent relief request under the 2022 Regulations, any existing obligation to repay deferred rent under previous rent relief agreements made under the 2020 or 2021 Regulations is postponed until 15 March 2022.
Prohibition on rent increases
A landlord must not increase the rent payable under the eligible lease between 16 January and 15 March 2022 (Protection Period).
If, during the Protection Period, the lease specifies a date for a rent increase, or a review of the rent payable that would increase the rent, then that review is voided any may never be claimed.
This captures fixed increases, and potentially market rent reviews (especially if subject to a ratchet clause).
Does the tenant have to pay any rent or outgoings?
For the Protection Period, the tenant is not in breach of a requirement to pay rent or outgoings if, before a rent relief agreement is made:
- the tenant has made a request for rent relief;
- the rent relief request has not lapsed; and
- the tenant continues to pay an amount equal to the rent, less the percentage of the tenant’s decline in turnover.
Limitations on enforcement action (including drawing on lease security) continue to apply. The VSBC continues to offer mediation.
How can we help?
We provide practical advice to landlords, managing agents and tenants who are struggling to navigate rent relief requests and negotiations under successive regulations.
To discuss your situation, please contact Morgan Scholz, Head of Property, on (03) 8600 8890 or mscholz@kcllaw.com.au, Mark Yaskewych, Principal Lawyer, on (03) 8600 8830 or myaskewych@kcllaw.com.au, or Geoff Kliger, Senior Special Counsel, on (03) 8600 8878 or gkliger@kcllaw.com.au.
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Note: This update is a guide only and is not intended to constitute legal advice.