Commercial Rent Relief Scheme reintroduced
Covid-19

Commercial Rent Relief Scheme reintroduced

MB+M talks about:  Commercial Rent Relief Scheme reintroduced

The Victorian Government has announced the reintroduction of the Commercial Tenancy Relief Scheme, which is broadly based on the previous scheme that was introduced in 2020, with the aim of supporting tenants and landlords to negotiate, in good faith, to reach an agreement on rent relief.

The scheme requires landlords to provide rent relief to eligible tenants who have experienced the requisite decline in turnover, and also provides for support for small landlords who can demonstrate ‘acute hardship’ as a result of giving that relief.

The scheme will apply to eligible leases that were in effect on 28 July 2021, and will operate from that date until 15 January 2022, but only applications made by 30 September 2021 will be eligible to be backdated.

Tenants will need to prove their eligibility for the scheme, in accordance with the turnover rules used for the JobKeeper Payments scheme.

Relief eligibility

The scheme is available to small and medium businesses with an annual turnover of less than $50 million during the 2021 financial year which have experienced a drop in turnover of 30% or more. Relief is also available to most charities registered with the Australian Charities and Not-for-profits Commission (ACNC) that have experienced a decline in turnover of 15% or more.

To satisfy the decline in turnover test, tenants will need to compare their turnover for a consecutive three month period between 1 April 2021 and 30 September 2021 with the corresponding period in 2019.

Determining turnover

Turnover is defined as the GST turnover, and should encompass all operating income, including payments such as the Victorian Government COVID-19 Business Support Fund payments received by the tenant during the relevant period.

There are also provisions to use an alternative comparison turnover if applicable.

The following documentation may be used to prove decline in turnover:

  • Accounting records;
  • Business Activity Statements;
  • Bank statements;
  • A statement prepared by a practising Accountant

Applying for Rent Relief

Eligible tenants must make a written request to their landlord for relief, which must be accompanied by a statement that they are an eligible tenant and a statement that the tenant satisfies the decline in turnover test.

Within 14 days of making the request, the tenant must provide a statutory declaration to the landlord, stating that they are an eligible tenant and that the information provided is true to the best of their knowledge.

Landlord obligations

A landlord must offer rent relief in writing to an eligible tenant within 14 days of the tenant making a compliant written request, unless a different time frame has been agreed to by the landlord and tenant in writing.

An offer of rent relief must relate to up to 100 per cent of the rent payable under the lease during the rent relief period and must, at a minimum, match the fall in the tenant’s turnover. At least 50 per cent of the rent relief offered must be in the form of a rent waiver unless the landlord and tenant reach a different agreement in writing.

Applications, including supporting evidence, made by 30 September 2021 will be eligible for rent relief backdated to apply from 28 July 2021 to 15 January 2022. The rent relief period for applications made on or after 1 October 2021 will run from the date the application is made until 15 January 2022.

Landlords are also required to offer an extension to the existing lease term equal to the period for which the rent is deferred.

Deemed acceptance

If the tenant and landlord have failed to reach an agreement within 14 days of an offer being made, a tenant will be deemed to have accepted a landlord’s offer of relief if:

  • The landlord’s offer meets the requirements of the scheme; and
  • The tenant has not applied to the Victorian Small Business commission for free mediation.

Reassessment of rent relief

For businesses that commenced trading prior to 1 April 2021, there must be a reassessment of rent relief as at 31 October 2021.

The re-assessment is based on the tenant’s turnover for the quarter ended 30 September 2021. If the re-assessment results in a change in turnover (which is any difference between the decline in turnover percentage used for the initial request for relief and the decline in turnover percentage based on the quarter ended 30 September) the amount of rent relief provided to the tenant must be adjusted from 31 October onwards.

A failure to submit evidence of the re-assessment may result in the rent waiver being removed. However, there will be no impact on deferrals.

Protections for the tenant

A landlord cannot evict an eligible tenant if the tenant can’t pay rent because of a fall in turnover due to coronavirus, provided:

  • the lease was in effect on or before 28 July 2021 and
  • The tenant has made a written request for rent relief from their landlord, and continued to pay their rent in proportion with their drop in turnover

A landlord also cannot evict a tenant under an eligible lease where the tenant is unable to trade as a result of:

  • sickness or injury affecting the tenant, its officers or employees
  • natural disaster affecting the tenant.

Rent increases will be restricted until 15 January 2022, regardless of whether or not the tenant has requested rent relief, and any rent review increase during this period would be voided.

Support for landlords

Support will also be provided to assist small landlords who provide rent relief to their tenants and who can demonstrate ‘acute hardship’ as a result of giving rent relief. Details on this have not as yet been released.

The government has also announced that landlords who provide rent relief to their tenants will be eligible for land tax relief of up to 25% in addition to any previous relief.

The State Revenue Office is still to announce further details in relation to the eligibility criteria and application process for the new round of land tax relief.

If you cannot reach an agreement

Where an agreement can’t be reached, either the tenant or landlord can apply to the Victorian Small Business Commission for free and impartial mediation to help resolve the matter.

The next step

If you need assistance with the decline in turnover rules or any other aspect of the new Commercial Tenancy Relief Scheme please contact your MB+M advisor on 03 5821 9177.

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