A practical guide to claiming rent relief and responding to rent relief claims in Victoria
With the Victorian Commercial Tenancy Relief Scheme Regulations 2021 (2021 Regulations) being made last week, tenants are wondering how they can request rent relief and landlords are wondering how they need to respond.
This is a step-by-step guide to assist tenants and landlords with making and responding to a request for rent relief under the 2021 Regulations.
Step 1 – Work out if tenant is eligible to make a request
A tenant needs to consider the following requirements:
- does the tenant have a retail lease or licence or a non-retail commercial lease or licence?
- is the lease or licence in effect on 28 July 2021? If it has since expired but has been renewed or extended, the renewal or extension also counts.
- does the tenant (or its group of companies in the aggregate) have a turnover less than $50 million?
- has the tenant suffered a decline in turnover of at least 30% during the applicable test period?
- that the tenant is not a listed company (or a subsidiary of one), a government agency, a local governing body, a sovereign entity, in liquidation or bankruptcy, and has not had a levy imposed on it under the Major Bank Levy Act.
- that the tenant is not using the premises for agricultural, farming or similar activities.
If all of the above are satisfied, the tenant may make a request for rent relief. Even if the tenant was eligible under the previous rent relief scheme, they still need to make a new request and meet the eligibility criteria under the 2021 Regulations.
Step 2 – Making a request
A tenant should make its request (which must be accompanied by the supporting information in step 3 below) by 30 September 2021 in order to have the rent relief backdated to 28 July 2021.
Tenants can still make a request after 30 September 2021, but the rent relief will commence from the date of the tenant making a complying request.
The rent relief period ends on 15 January 2022.
The request has to be in writing and be accompanied by a statement that:
- the tenant is an eligible tenant;
- the tenant satisfies the decline in turnover test, including setting out the tenant’s turnover, the turnover test period used, the comparison turnover, the comparison period or alternative turnover method used, tenant’s decline in turnover and the proportional rent relief being sought by the tenant; and
- outlines any other circumstances the tenant wishes the landlord to consider.
To work out the tenant’s turnover, internet sales are to be included, as are Victorian Government COVID-19 Business Support Fund payments. However, turnover does not include any Commonwealth Government financial assistance related to COVID-19. Whilst the previous rent relief scheme expressly referred to sales from the premises, the 2021 Regulations do not limit sales to the premises.
Generally speaking, the tenant may choose a consecutive 3 month period between 1 April 2021 and 30 September 2021 to compare against the corresponding period in 2019 to determine its decline in turnover.
The turnover test period and comparison period largely depends on when the tenant commenced trading, whether it was before or during the pandemic. An alternative comparison turnover may also apply for new businesses not operating before April 2019, or if any of the events recognised in the 2021 Regulations caused irregularity with the tenant’s turnover (eg business acquisition, disposal or restructure, natural disaster, temporary cessation of trade which resumed before 28 July 2021 etc).
The VSBC has a useful FAQs section which contains a table (and several other useful information) setting out the turnover test period and comparison turnover period.
Step 3 – Providing supporting information
Tenants have to do this within 14 days of making a rent relief request.
A tenant has to provide the landlord with evidence of its turnover figures to support its rent relief request – the evidence is either the tenant’s accounting records, BAS, bank statements or an accountant’s statement.
The tenant also has to provide a statutory declaration that the tenant is an eligible tenant and the information provided by the tenant is true to the best of the tenant’s knowledge and belief.
Failure to meet the 14 day timeframe will lapse the tenant’s rent relief request. The tenant may make further rent relief requests but if these lapse 3 times, the tenant cannot make a further rent relief request.
Step 4 – Landlord’s offer
Landlords have to do this within 14 days of receiving a complying request from the tenant, unless the parties agree a different timeframe.
A landlord must offer rent relief in writing to the tenant, proportional to the tenant’s decline in turnover. At least 50% of the rent relief offered by the landlord must be a waiver of rent (ie that rent is gone forever), but the parties can agree that the rent relief takes a different form. The landlord is required to take into account the circumstances outlined by the tenant in its rent relief request.
If any rent is to be deferred as part of the parties’ rent relief agreement, the landlord must offer that the lease term be extended (on existing terms) for a period equivalent to the period the rent is deferred. If the parties do not wish to extend the lease term (or only to extend it for a shorter period), they need to agree this in writing.
Landlords must consider waiving recovery of outgoings if the tenant is not able to trade at the premises.
Step 5 – Negotiation period
Parties are to negotiate for 15 days after the landlord’s complying offer is received, to agree the rent relief. Parties are to cooperate and act reasonably and in good faith in their discussions.
The tenant should diarise to refer the matter to the Small Business Commission before the 15 days is over, if the parties do not reach agreement on the rent relief. This timing is critical as the tenant is deemed to have accepted the landlord’s offer if it does not do this on time.
Step 6 – Document the agreement
Once rent relief is agreed, the parties should document the agreement as a variation to the lease or by any other agreement which gives effect to the rent relief.
Step 7 – Reassess turnover and make adjustment
Once a rent relief agreement has been made, a reassessment is required if the tenant made its request on or before 30 September 2021 (where the tenant began trading before 1 April 2021). The reassessment is to allow the tenant’s decline in turnover to be reassessed taking into account its turnover for the quarter ending September 2021 (or other relevant test period), as this information might not have been available when the tenant made its initial request.
Before 31 October 2021, the tenant must provide the landlord with turnover information required for the reassessment. This date is critical as failure to provide the information on time means the tenant loses any rent waiver from 31 October 2021 (unless the parties agree otherwise). A justifiable excuse is provided for sickness or natural disaster resulting in an inability to trade.
The turnover information for the reassessment will be turnover in the quarter ending 30 September 2021 and the same quarter in 2019, unless the tenant started trading between 1 July 2019 to 31 March 2021, or if an alternative comparison turnover method was used. If there is a difference between the change in turnover and the decline in turnover, then the rent relief is adjusted from 31 October 2021 based on the tenant’s change in turnover.
The tenant must provide a further statutory declaration that it is an eligible tenant and the information provided by the tenant is true to the best of the tenant’s knowledge and belief.
Step 8 – Tenant to monitor if there is a material change in tenant’s financial circumstances
If there is a material change in the tenant’s financial circumstances, the tenant may make a further request for rent relief (up to 15 January 2022) and the application process applies again.
Step 9 – Beyond 15 January 2022
Once 15 January 2022 arrives, landlords cannot clawback a rent review that fell within the protection period, if this would result in a rent increase. The 2021 Regulations expressly prohibit landlords from doing this and the particular rent review is lost forever. This stops 2 rent increases being applied over a 12 month period which landlords were doing under the previous rent relief scheme because the rent review was only ‘frozen’. As the 2021 Regulations seek to prohibit rent increases during the protection period, it’s unclear in the 2021 Regulations whether tenants can insist on having a rent review which results in a decrease in rent (eg mid-term market review in a falling market).
Deferred rent (including any from the previous rent relief scheme) only starts to be payable after 15 January 2022. The deferred rent is paid over 24 months (or over the remaining lease term including any lease extension, if this is longer than 24 months). The parties are free to agree different arrangements for the deferred rent.
Several of the protections provided by the previous rent relief scheme are also provided in the 2021 Regulations, for the protection period up to 15 January 2022. This includes rent increase prohibitions, protections for the tenant’s bank guarantee or other security and against eviction and breach for reduced trading hours or not paying rent. However, the protections require the tenant to play its part as required by the 2021 Regulations. For instance, tenants cannot withhold rental payments and are not protected from breach unless they have made a rent relief request and continue to pay rent proportionate to their decline in turnover.
The 2021 Regulations are comprehensive and contain several exceptions and alternatives as they seek to cater for several different scenarios. This includes providing alternative test periods for new businesses that were not operating in 2019. The information provided in this document is only for information purposes and advice on how the 2021 Regulations apply to your circumstances should be sought.