What does the Commercial Tenancy Relief Scheme involve?
The Victorian Government have introduced the Commercial Tenancy Relief Scheme Bill 2021 (Vic) into Parliament. This was done by re-introducing the Commercial Tenancy Relief Scheme.
On the 3rd of August 2021, the Victorian Government announced that the Bill had passed both Houses of Parliament. The Bill still needs to receive Royal Assent in order to be enforced. Once the Royal Assent is granted, the scheme will be considered in operation from 28 July 2021 until 15 January 2022. This scheme will provide rent relief to tenants eligible under the scheme.
Due to the impact COVID19 has had on Victorian businesses, this is a hard time for commercial tenants and landlords. The Victorian Government is taking action to ensure that small and medium businesses are supported during this time.
The criteria for eligible commercial tenants are as follows:
- An existing lease must be in force dated on or before 28 July 2021;
- The business must have an annual turnover of less than $50 million;
- The business must have suffered a decline in turnover of at least 30% due to coronavirus; and
- Businesses will be assessed on eligibility once. If they are found to be eligible, they will remain eligible for the entirety of the scheme.
How does the scheme work?
Proportional rent relief will be provided to tenants. This will be calculated by comparing turnover. The final quarter of the 2020/2021 financial year will be compared to the turnover from the final quarter of 2018/2019.
As at 25 August 2021 eligibility for rent relief has been broadened, with tenants now able to choose three consecutive months between 1 April and 30 September 2021 to compare to their turnover in the same three months in the 2019 financial year.
For example, three consecutive months (April-June) would need to be compared to the same three months in 2019 (April-June). A minimum of half of the relief will be waived and the remainder of the relief will be deferred. The deferred rent is payable from 15 January 2021.
These deferred payments can be made over a period of 2 years, or over the term of the lease if shorter.
Example: A business with a decline in turnover of 50% due to coronavirus can only be charged 50% of its rent. Half of the relief will be waived and the remainder will be deferred.
- An eligible tenant makes an application;
- Evidence is provided within 14 days of making the application;
- The landlord makes an offer to the tenant within 14 days of receiving the tenant’s evidence;
- The tenant provides the landlord with a response;
- The landlord and tenant come to an agreement in good faith and rent relief is provided; or
- The landlord and tenant are unsuccessful in coming to an agreement and contact Victorian Small Business Commission (VSBC) to undergo mediation.
It is likely that the evidence that will be required from tenants is as follows:
- Accounting records and statements from a registered accountant;
- Business activity statements;
- Bank statements;
- Any financial records that can demonstrate the decrease in turnover from the 2018/2019 financial year to the 2020/2021 financial year; and
- A statutory declaration outlining that the evidence provided is true and correct.
Negotiating can be a daunting process. We have put together some factors to consider when undertaking negotiations between landlord and tenant:
- Consider the legal requirements enforced under the scheme;
- Ensure you are meeting deadlines;
- Ensure the use of clear communication and transparency, fairness and honesty;
- Provide relevant and accurate information; and
- Finalise your agreement in writing.
What happens to new businesses with no financials to assess?
Many new businesses will be concerned of their eligibility to receive rent relief. The Victorian Government have advised that new businesses that are unable to compare turnover figures will still be eligible to receive assistance.
Special arrangements will be made to assess the turnover impacts for businesses that were not operating in 2019. Once more information is published, we will provide a more in-depth explanation on the arrangements.
What impact will the scheme have on landlords?
- Landlords that have tenants that are eligible to rent relief, will be provided with a land tax relief of up to 25% from the Victorian Government.
- Landlords are unable to lock out or evict tenants without a determination from the VSBC.
- Landlords and tenants that cannot come to an agreement privately through negotiating in good faith, can apply for free mediation services which will assist in reaching an agreement with the help of the VSBC.
- Landlords are prohibited from increasing rent during the operation of the scheme.
- The Victorian Government have also announced that they will create an $80 million hardship fund for landlords who provide rent relief to eligible tenants.
This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.