In our previous alert from 4 August 2021, we outlined what we knew so far about the reintroduction of the Victorian Commercial Tenancies Relief Scheme (2021 CTRS). Now that the Regulations have been released we summarise the 2021 CTRS as follows:
- Eligible leases: the lease must have been in effect on 28 July 2021, the tenant must be an eligible tenant and the lease not fall within an excluded category (being agricultural leases or where tenant is a listed corporation or a subsidiary of such corporation). An extension or variation of lease after 28 July 2021 on substantially similar terms is deemed to be a continuation of an eligible lease.
- Eligible tenants: the tenant must be an SME entity that operated a business as at 28 July 2021 and must satisfy the decline in turnover test. Not- for-profits/deductible gift recipients are also eligible. There are also a number of excluded categories of businesses
- Decline in Turnover Test: this is satisfied if the turnover for the turnover period falls short of the tenant’s comparison turnover by 30% or more. Turnover includes State Government COVID grants and turnover derived from internet sales. Turnover does not include Federal Government assistance. The dates for the turnover test period and comparison turnover period are dependent on when the tenant first commenced business, and the Small Business Commissioner has created a helpful summary table (see link below).
- Mandatory Reassessment: for Tenants that began trading before 1 April 2021, submitted a rent relief request on or before 30 September 2021 and entered into a rent relief agreement, a mandatory reassessment is required by 31 October 2021 which may result in the rent relief increasing or decreasing.
- Rent Increases: regardless of whether the Tenant has requested rent relief, the Landlord of an eligible lease cannot increase the rent due between 28 July 2021 and 15 January 2022 unless both parties agree. Any provision in the eligible lease that increases the rent during such period is void and may never be claimed by the landlord.
The process of the 2021 CTRS is as follows:
- Request: the Tenant must provide the Landlord with a formal request in writing stating that they are an eligible tenant under the Victorian 2021 CTRS and are seeking relief.
- Evidence: the Tenant then has 14 days to submit its evidence demonstrating decline in turnover, which can be extracts from the Tenant’s accounting records, business activity statements, an accountant’s statement or a statement from an authorised deposit-taking institution. The Tenant is required to provide a statutory declaration that the information provided is correct. If the Tenant submits its request on or before 30 September 2021, the rent relief period starts retrospectively on 28 July 2021. If the request is submitted after 30 September 2021, the rent relief period commences from the date of the Tenant’s request.
- Offer: from the date evidence is provided, the Landlord has 14 days to respond with an offer in writing of the rent relief, unless otherwise agreed by the Landlord and Tenant. The Landlord’s offer must at a minimum be proportional to the tenant’s decline in turnover and take into account ‘other circumstances’ noted by the Tenant. As was stated in the previous alert, the Landlord must offer at least half of the rent relief to be waived, and the other half deferred unless an alternative arrangement is agreed.
- Negotiation or Acceptance: from here, the Tenant can either accept the offer, or negotiate with the Landlord. If negotiation occurs, both parties must negotiate in good faith and have 14 days to reach an agreement or refer a dispute to the Small Business Commissioner, otherwise the Tenant is deemed to have accepted the offer.
The Small Business Commissioner has published and updated its series of FAQs regarding the 2021 CTRS, and summary tables for the relevant turnover periods, which can be accessed here
If you have any questions about Victoria’s 2021 CTRS or require property advice, please contact a member of our Victorian Property Team.