If you’re a commercial tenant struggling with rent payments, further support is here with new regulations through the Commercial Tenancy Relief Scheme.
Small and medium businesses that have experienced a loss in turnover of more than 30% during the pandemic will receive financial relief in the form of proportionate rent reduction. New businesses will also be protected, with special arrangements in place to calculate the turnover for businesses that were not operating in 2019.
As part of the Scheme, the Victorian Small Business Commission will support tenants and landlords with information and free mediation to negotiate an agreement.
The Scheme will apply retrospectively from 28 July 2021 and will run until 15 January 2022.
Our friends at Lawcrest have put together a very helpful summary below to draw out the key information.
- Who is eligible for rent relief?
The Regulations apply to tenants of leases in place as at 28 July 2021. The basic eligibility criteria for rent relief for such tenants is as follows:
- as at 28 July 2021, a tenant operated a business within Australia;
- the tenant’s turnover is less than $50,000,000 (calculated for the financial year ending 30 June 2021, or based on projected revenue for the 2022 financial year if the tenant didn’t operate it’s business for the entirety of the 2021 financial year). Note that turnover of connected or associated entities is aggregated for the purpose of this test;
- the tenant has suffered at least 30% decline in turnover;
- the tenant isn’t a listed entity (or subsidiary of a listed entity) or otherwise excluded under the Regulations (e.g. due to insolvency).
2. When does rent relief begin and end?
If you make a valid rent relief application by 30 September 2021 (including supplying all supporting documents necessary in line with the Regulations), then rent relief will begin as and from 28 July 2021 and operate until 15 January 2022 (Rent Relief Period). If you fail to make a valid application by 30 September 2021, then rent relief will commence from the date that you make a valid application. Therefore, if you are eligible for rent relief it is essential to make a valid application as soon as possible.
Importantly, the new Regulations do not protect for any amounts owing prior to 28 July 2021. If you are in arrears for any amounts accrued prior to this date, we strongly recommend you make arrangements to pay those debts as soon as possible.
3. How much rent relief are you entitled to?
As with last year’s scheme, rent relief must (at a minimum) correspond with the decline in revenue, with half of that relief waived entirely and the remaining half deferred. So if you have suffered a 100% decline in revenue, then 50% of all rent will be waived and the remaining 50% is deferred until after January 2022. Deferred rent is payable over the greater of 2 years or the remaining term of the lease.
4. How will ‘decline in turnover’ be calculated?
There are two important timeframes that will be used to calculate whether you have suffered a ‘decline in turnover’ for the purposes of the Regulations – the Turnover Test Period and the Comparison Period. These are explained below:
- Turnover Test Period: this is the period in which your business has suffered due to Covid in 2021. Your turnover during this period (when compared to the Comparison Period) will determine how much rent relief your are entitled to receive. The Turnover Test Period is any three consecutive months between 1 April 2021 and 30 September 2021. You can elect which three months within that period you want to use to compare your revenue. To make things easier for you we suggest you consider which of the following three month periods had the lowest revenue in total and use that as your Turnover Test Period:
- April, May & June 2021;
- May, June & July 2021;
- June, July & August 2021; and
- July, August & September 2021.
Once you have looked into which three month period had the lowest total revenue, please let us know as that will be your Turnover Test Period.
- Comparison Period: this is the “pre-Covid” period that will be used as a comparison timeframe to determine whether your business has suffered as a result of Covid. If your business was operating prior to April 2019, then the Comparison Period is the same 3 month period selected above (for the Turnover Test Period) in the 2019.
For example, if your business was not operating at all during May, June and July of 2021 due to lockdown, you would compare the total revenue in those months (i.e. $0) to the same three months (May, June & July) in 2019 to calculate the percentage decline in revenue.
5. What if your business was not operating in 2019?
The Regulations include several alternative tests for comparing a decline in revenue, and these largely replicate the alternative tests used to determine Jobkeeper eligibility last year. If your business used one of these alterative tests for Jobkeeper purposes, then please contact us to discuss which alternative test will apply to you for the purposes of the Regulations.
6. How is turnover calculated?
There are a few changes to how ‘turnover’ is calculated for the purposes of the Regulations. Importantly, when disclosing your turnover the following is included:
- the tenant’s turnover from all sources (including online sales and other premises); and
- any amounts you have received from State Government Covid related grants or financial assistance (however, do not include any amounts paid to you from any Commonwealth government grants).
7. What information needs to accompany an application for rent relief?
Technically under the Regulations you can apply for rent relief and submit the supporting documents within 14 days. If you fail to submit the supporting documents in time, your application will lapse. Given that you have until 30 September to put in an application for the full Rent Relief Period, we recommend submitting all of the supporting material at the same time as making a rent relief application. The supporting material will include:
- evidence of the decline in turnover – this will involve supplying evidence of your turnover during the Comparison Period as well as the Turnover Test Period (described above). As with last year’s regulations, at least one of the following must be provided as evidence of our decline in turnover:
- extracts from your accounting software;
- a business activity statement for the applicable months;
- bank statements; or
- a letter from a practising accountant;
- there is a new requirement under the Regulations requiring you to submit a statutory declaration confirming that the information that you have supplied is true and correct to the best of your knowledge; and
- you can also include such other information as you consider relevant in support of your application (for example, that your business is highly susceptible to any density limits or restrictions on gatherings).
8. Can you obtain rent relief for outgoings?
The Regulations include the same provisions regarding outgoings as those that applied last year – a landlord must consider a request for relief from payment of outgoings. Importantly, a recent case decided in VCAT found that this requirement required the landlord to waive liability for payment of outgoings for any period during which the tenant could not operate the business. Note however that you have used the premises for the purposes of online sales, then you are not likely to be successful in arguing that the premises was not operational.
9. What happens to rent deferred from 2020?
If you obtained rent relief in 2020 that included deferred rent payable throughout 2021 (and beyond), those payments are paused between 28 July 2021 and 15 January 2022 (if you make a rent relief application by 30 September 2021). However, please note that any payments of deferred rent that were due and payable prior to 28 July 2021 are still due and payable and have not been deferred – so please ensure that these are paid (if they are outstanding).
10. Important things to be keep in mind
There are a few other important aspects to the Regulations to be aware of:
- After making a successful rent relief application, you must have the application re-assessed by 31 October 2021. This involves reconsidering the decline in turnover based on the turnover of the business for the quarter ending 30 September 2021 (and the corresponding quarter in 2019). A failure to submit the required turnover information for re-assessment by 31 October 2021 results in the end of your entitlement to rent relief as and from 31 October 2021.
- It is now an offence to provide misleading and deceptive material in a rent relief application.
- In order to remain eligible for rent relief, you must continue to pay the percentage of rent agreed with the landlord. For example, if your business has suffered a 90% decline in revenue (resulting in 90% rent relief), you must keep paying the 10% rent or you will lose your entitlement to rent relief.
- If the landlord makes a rent relief offer that complies with the minimum requirements set out in the Regulations, then you will be deemed to have accepted that offer unless you apply to the Small Business Commissioner for mediation within 14 days.
- The Regulations specify that any rent increases during the Rent Relief Period will not apply. Unlike the old regulations from 2020, a rent increase that falls within 28 July 2021 and 15 January 2022 is not simply ‘paused’ or ‘deferred’ to a later date – it is skipped entirely.
11. How do tenants apply for rent relief?
It is not enough to simply be eligible for rent relief – you also have to apply in the manner set out in the Regulations. Applications for rent relief require some specific wording to be used to confirm eligibility. Importantly, the cases determined at VCAT last year regarding the rent relief scheme consistently found that rent relief applications which did not strictly adhere to the application procedure failed.
Feel free to contact us or Lawcrest if you require any assistance.