ALERT: Commercial landlords & tenants – rental relief changes

EXTENSION AND CHANGES TO THE VICTORIAN COMMERCIAL TENANCY RELIEF SCHEME

As you may be aware, the Victorian Government announced an extension of the Commercial Tenancy Relief Scheme.

On 29 September 2020, the extension and changes to the Scheme were implemented by the introduction of COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020. The amendments take effect from 29 September 2020, which is the day the previous Regulations were to expire.


Brief summary of some key changes
  • (Extension) The rental relief scheme has been extended from 29 September 2020 to 31 December 2020.
  • (Eviction) Provided that a tenant follows certain procedural requirements, a landlord cannot take adverse actions against the tenant for non-payment of rent and outgoings. However, a landlord can still take such an action against the tenant for other defaults or breaches of the lease.
  • (Tenant’s Request) A tenant’s request for rent relief will now need to be supported by additional information including details of the tenant’s decline in turnover and evidence of that decline.
  • (Landlord’s offer) A landlord’s rent relief offer must now:
    • (Rent relief period) relate to the period commencing on the date of the tenant’s request for rent relief request and ending 31 December 2020.
    • (Proportionality) be, at a minimum, proportional to the decline in the tenant’s turnover associated with the premises.
    • (Premises) relate solely with the premises (and not other premises leased by the tenant).
  • (Deferred rent) Landlords cannot demand deferred rent to be repaid before 31 December 2020. This applies retrospectively therefore landlords who have previously agreed to repayment of deferred rent commencing 30 September 2020 must now wait until 1 January 2021.
  • (Subsequent rent relief) Tenants who have previously agreed on rental relief with their landlords may make a subsequent request if the prior relief was not proportional to the tenant’s reduction in turnover or did not extend to 31 December 2020 or the tenant’s financial circumstances have materially changed. However, the subsequent relief will only apply from the date of the subsequent request until 31 December 2020. In other words, it does not apply retrospectively therefore any prior relief from 29 March 2020 cannot be adjusted to meet the new proportionality requirements.
  • (Binding Orders) On application by the tenant, the Victorian Small Business Commissioner (VSBC) have powers to make binding orders in relation to rent relief in circumstances where the landlord has failed to respond to a mediation request or has not engaged in the mediation in good faith. The tenant or landlord may apply to VCAT for a review of the VSBC’s decision.

How the changes affect you as a tenant:
  • All eligible tenants SHOULD consider making a new or subsequent request for rent relief at the earliest opportunity.
  • This is due to the new requirements of a tenant’s rent relief request that are substantially different to the older requirements. There are risks that a request made under the old Regulations may not comply with the requirements under the new Regulations.
  • A tenant who delays making a rent relief request will not be protected by the new Regulations until such time as a compliant request is made to the landlord. This is critical because rent relief can only be offered from the date of the request until 31 December 2020. The longer the tenant waits, the lesser rent relief the tenant may get.
IF YOU ARE A TENANT, a request for rent relief must now meet some onerous requirements and be supported by:

1)    a statement from the tenant:

a)    that the lease is an eligible lease;

b)    that the lease is not excluded from the operation of the Regulations (for reasons of grouped entities or agricultural nature); and

c)     setting out the tenant’s decline in turnover that is associated only with the premises (expressed as a whole percentage and calculated in accordance with the decline in turnover test utilised by the tenant in respect of their Jobkeeper application and in relation to the tenant’s most recent decline in turnover test period);

2)    information that evidences the tenant:

a)    is an SME entity with an annual turnover of less than $50mil;

b)    is an entity entitled to Jobkeeper payments (including the tenant’s Jobkeeper receipt number and a copy of the tenant’s most recent notice to the Commissioner of Taxation under the Jobkeeper rules); and

3)    information that provides evidence of the tenant’s stated decline in turnover including at least one of:

a)    extract from the tenant’s accounting records;

b)    the tenant’s BAS relating to the relevant turnover test period;

c)     statements issued by a banking institution; or

d)    a statement by a practising accountant.


How the changes affect you as a landlord:
  • Under the new Regulations, landlords must now offer rent relief that is proportional to the decline in the tenant’s turnover associated with the premises. This means that, for example, if the tenant’s decline in turnover is 70%, then 70% rent relief must be offered (at least half of which must be in the form of a rent waiver).
  • The previous requirement that a landlord’s offer of rent relief take into account the landlord’s financial ability to offer rent relief has been deleted. Landlords who are already struggling financially may not like this.
  • Landlords cannot demand repayment of deferred rent (including under existing agreements) until after 31 December 2020.

How the changes affect both landlords and tenants:
  • If tenants and landlords fail to come to an agreement, the matter can be referred to VSBC.
  • VSBC has been granted significant powers to make binding orders “on the papers”. The process requires a landlord to respond to a notice from the VSBC within 10 business days. There is no corresponding time limit imposed on a tenant’s response.
  • If mediation fails, VSBC may issue a Certificate. The Certificate must state whether the landlord has failed to respond to the Notice or has, in VSBC opinion, failed to engage in mediation in good faith.
  • It appears that if a landlord has failed to engage in good faith, this may subsequently result in VSBC issuing a binding order compelling the landlord to give specified rent relief.
  • There are certain steps and procedural requirements that both parties must follow when referring a dispute to VSBC or applying for binding orders.

How Nevile & Co can assist you as a client:

A poorly negotiated agreement without legal assistance will have a longer lasting impact than the pandemic. Legal solutions will be unique to each situation, so it is important that you contact us for a discussion on your specific circumstances. We invite you to email our Senior Associate, Mr Meng Cheong at meng.cheong@nevile.com.au for bespoke advice in relation to your commercial leasing matters.

And we recommend that you do so immediately.

 

Date: 30 September 2020

Disclaimer: This publication contains comments of a general and introductory nature only and is provided as an information service. It is not intended to be relied upon as, nor is it a substitute for specific professional legal advice. You should always speak to us and obtain legal advice before taking any action relating to matters raised in this publication.