Amendments to the COVID-19 Commercial Tenancy Relief Scheme as of 29 September 2020

Melanie Young, Emma Dunlevie, Mark McKinley and Samantha Taylor.

On 29 September 2020, the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 (Amending Regulations) came into force. This followed the passing of the enabling Act, the COVID-19 Commercial and Residential Tenancies Legislation Amendment (Extension) Act 2020 (see our last Alert here).

The Amending Regulations officially extend the Commercial Tenancy Relief Scheme (CTRS) until 31 December 2020. They amend the existing rent relief provisions contained in the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Existing Regulations) which applied to the period 29 March 2020 to 29 September 2020. The Amending Regulations amend the Existing Regulations, but the Amending Regulations take effect from 29 September 2020 and do not apply retrospectively (except in relation to deferred rental payments, which is discussed at point 6 below).

Below is a summary of the changes to the CTRS as a result of the Amending Regulations.

1. Extension to the CTRS

As expected, the Amending Regulations extend the operation of the CTRS until 31 December 2020.

It is important to note the Amending Regulations do not automatically extend any existing rent relief agreement between a landlord and a tenant until 31 December 2020. Therefore:

  • Any existing rent relief agreement between a landlord and tenant for the period between 29 March 2020 and 29 September 2020 remains governed by, and operational under, the Existing Regulations; and
  • Tenants who wish to seek rent relief for the period between 29 September 2020 to 31 December 2020 must make a new rent relief application to a landlord under the Amending Regulations.

Leases which were entered into after 29 March 2020 continue to be ineligible for the benefits and protections offered by the Existing Regulations and the Amending Regulations.

2. Changes to ‘eligible lease’ definition

Changes to the definition of ‘eligible lease’ mean that a tenant no longer needs to be an employer, but must still be an SME and receiving JobKeeper payments.

If a tenant becomes ineligible for JobKeeper payments after making a valid rent relief request, the tenant will still be entitled to the benefits of the Amending Regulations.

The Amending Regulations also clarify that any coronavirus economic response payment received by a tenant (including JobKeeper payments) should not be included in the calculation of turnover for the purposes of the Amending Regulations.

3. New applications for rent relief

A tenant can make another application for rent relief for the period starting 29 September 2020 until 31 December 2020, if:

  • Their financial circumstances have materially changed;
  • A previous rent relief agreement (entered into prior to 29 September 2020) did not allow for rent relief proportionate to the decline in the tenant’s turnover; or
  • The previous rent relief agreement did not extend to 31 December 2020.

In practice, this means that most tenants must make a new application for rent relief under the Amending Regulations or re-negotiate their existing rent relief agreements with their landlords, in order to ensure that tenants are afforded the benefits of the Amending Regulations for the period 29 September 2020 until 31 December 2020.

Critically, any new applications for rent relief will only apply for the period starting from the date that the tenant makes the application to the landlord until 31 December 2020. Therefore, it is essential that tenants make new applications as soon as possible to ensure that they receive the maximum period of rent relief between now and 31 December 2020.

4. Tenant’s rent relief application

The requirements for a rent relief application under the Amending Regulations have changed substantially compared with the requirements under the Existing Regulations.

A new rent relief application by a tenant must now include:

  • A statement from the tenant:
    • that the lease is an eligible lease;
    • that the lease is not excluded from the operation of the Amending Regulations; and
    • setting out the tenant’s decline in turnover that is associated with the premises (and no other premises);
  • Information that evidences the tenant is:
    • An SME entity (small-medium enterprise); and
    • An entity entitled to JobKeeper (by providing a receipt number issued by the ATO when the tenant applied for JobKeeper, and a copy of the tenant’s most recent JobKeeper notice to the ATO); and
  • Information that evidences the tenant’s stated decline in turnover, including at least one of the following:
    • extracts from the tenant's accounting records;
    • the tenant's business activity statements relating to the relevant turnover test period;
    • statements issued by an ADI in respect of the tenant's account; and
    • a statement prepared by a practising accountant.

The requirement to provide “at least one” of the stated items evidencing decline in turnover departs from the earlier guidance from the Victorian Small Business Commission that only one of those items was required to be provided by a tenant.

The tenant’s decline in turnover must be expressed as a whole percentage and calculated consistently with the actual decline in turnover test used in respect of the tenant’s JobKeeper application and in relation to the tenant’s most recent decline in turnover test period.

5. Landlord’s offer of rent relief

The landlord must respond to a tenant’s application within 14 days (or such other timeframe agreed between the parties).

The landlord’s rent relief offer must:

  • be, at a minimum, proportional to the decline in tenant’s turnover associated with the premises.This is significant. The Existing Regulations simply required that the reduction in tenant’s turnover be taken into account. However, under the Amending Regulations, a rent relief offer must at a minimum be in proportion to the fall in turnover;
  • be based on “all circumstances of the eligible lease”;
  • relate to up to 100% of the rent payable for the period starting from the date of the tenant’s request and ending on 31 December 2020;
  • provide that at least 50% of the rent relief is in the form of rent waiver (unless agreed otherwise by the parties in writing);
  • take into account any waiver or reduction in outgoings;
  • take into account whether any failure to offer sufficient relief to the tenant would compromise a tenant’s capacity to meet its ongoing obligations under the lease; and
  • if the offer is in respect of a gross lease (where rent is inclusive of outgoings), be in respect of rent inclusive of outgoings.

The Existing Regulations provided that a landlord’s financial ability to offer rent relief could be taken into account in a rent relief offer. This has been revoked under the Amending Regulations.

Any agreement between the landlord and tenant for an offer of rent relief should ideally be documented in writing, preferably by way of a deed of variation of lease.

6. Deferred rent

The Amending Regulations provide that landlords cannot require payment of any deferred rent until after 31 December 2020 (even if the lease ends before that date).

This applies to rent relief agreements made under the Existing Regulations and any new rent relief agreements made under the Amending Regulations.

The tenant must pay the deferred rent to the landlord amortised over the greater of the balance of the term of the lease, and a period of no less than 24 months (the Amending Regulations have not changed this requirement).

7. Moratorium on evictions

The moratorium on a tenant being evicted from a premises on the basis of non-payment of rent from 29 March 2020 remains under the Amending Regulations, but has been extended to include any non-payment of outgoings.

The Amending Regulations also clarify that a tenant will not have breached their lease if they have made a valid rent relief request and:

  • Failed to pay rent and outgoings; or
  • Reduced their opening hours or closed their business.

8. Powers of the Victorian Small Business Commission (VSBC)

The Amending Regulations give the VSBC additional powers in relation to disputes between landlords and tenants.

Procedures for VSBC mediation have expanded under the Amending Regulations. If a tenant refers a dispute to the VSBC and the VSBC issues notice to the landlord, the landlord must respond within 10 business days. New forms will be added to the VSBC website.

If mediation fails or is unlikely to resolve the dispute, the VSBC may issue a “Regulation 20A Certificate”. The VSBC can record on that certificate that the landlord has failed to respond to the VSBC’s notice of mediation or has failed to engage in mediation in good faith.

Once a certificate has been issued by the VSBC, a tenant may:

  • apply directly to VCAT for the matter to be heard in that jurisdiction; or
  • apply to the VSBC for a “binding order” for rent relief.

If the tenant applies for a binding order, the parties will make submissions and the VSBC must then make a binding order if it is satisfied that it is fair and reasonable to do so (no hearings are to be held). A binding order may include a direction to the landlord to give specified rent relief to a tenant, and must include the VSBC’s reasons. Either party may request amendment or revocation of the order, which the VSBC may then elect to either make or dismiss.

Within 14 days of a binding order being made, either party may apply to VCAT for a review of the VSBC’s decisions or for enforcement of a binding order.

VCAT has the power to hear any matters relating to rent relief disputes, and compliance with and enforcement of binding orders, and may make any orders it considers appropriate in relation to those disputes and/or binding orders.

How we can help

The introduction of the Amending Regulations adds an additional layer of complexity to the CTRS. Parties will need to review existing rent relief agreements to ensure that they comply with the Amending Regulations. Tenants may need to make new requests for rent relief that are compliant with the Amending Regulations (even if they made requests under the Existing Regulations) and they need to act without delay given that a landlord’s offer of rent relief need only relate to the period commencing on the date of the tenant’s request.

For further advice please contact Melanie YoungEmma DunlevieMark McKinleySamantha TaylorKrystal Pellow or Caroline Snaidr.

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