Leasing Update: Commercial Tenancy Relief Scheme Reintroduced for Victorian Businesses

Giancarlo Romano
12 August 2021

On 5 August 2021, the Victorian Government passed legislation that officially enabled the reinstatement (and amendment) of the Commercial Tenancy Relief Scheme (CTRS). The scheme is designed to appropriately assist small and medium sized businesses in the face of further lockdowns.

There is presently much commentary and discussion on what the new relief scheme will include; but this will only be confirmed upon the release of the new Regulations, which is expected to occur by the end of this month (August).  This new legislation will be in effect until 15 January 2022.

At a glance, it seems restrictions on landlord rights are broadly in line with the previous scheme regulations, though the eligibility criteria for tenants is now arguably broader.

Who is an eligible tenant?

The previous iterations of the CTRS relied on the JobKeeper program to determine tenant eligibility for rent relief. With the JobKeeper program no longer in operation, tenants will be able to demonstrate eligibility through a letter from an accountant, but such evidence must meet the various criteria including that from 28 July 2020:

• the Tenant had an annual turnover of less than $50 million (as required previously);
• the Tenant experienced a decline in turnover of at least 30 per cent as a result of the COVID-19 pandemic; and
• The Tenant may need to demonstrate that they have complied in full with any prior rent relief agreements reached (noting though that any existing deferral arrangements will go on hold from 28 July).

It is understood that eligibility for the scheme will be a one-time test. Businesses which are eligible at the beginning of the scheme will remain eligible throughout, with the proportion of rent relief adjusted or ‘reassessed’ in line with their turnover. This was confirmed in a recent press release by the Minister for Small Business, The Hon Jaala Pulford, however the time frames for re-assessment of the relief is, to date, still unclear.

How Will Turnover Reduction be Calculated?

Turnover reduction will be calculated by comparing the tenant’s turnover for the final quarter of the 2020/21 financial year with their turnover from the final quarter of 2018/19.  There is expected to be a formula also to apply to new businesses who were not in operation in early 2019.

The Minister confirmed that Government support grants will be included in calculation of turnover for determining rent relief (previously, JobKeeper receipts were excluded when determining turnover) and any online sales are ‘absolutely included’ in the calculation of turnover (previously it was limited to turnover associated solely with the premises in question).

Landlords Rights and Obligations:

• Landlords will be required to offer mandatory rent relief to eligible tenants in proportion to the tenant’s reduction in annual turnover as measured against pre-pandemic levels. For example, a tenant with a 40% drop in turnover must be provided with 40% rent relief of which it is anticipated at least half (20%) must be waived, and the remainder 20% deferred.
• As per previous, Landlords will be prevented from evicting eligible tenants without a determination from the Victorian Small Business Commission (VSBC) and the VSBC will be providing mediation services to further support fair tenancy negotiations. However, Landlords will now have the opportunity to apply for a binding order if the Tenant fails to mediate, fails to provide evidence of its loss in turnover, or if they otherwise fail to engage in the spirit of the legislation (and this may extend to tenants who choose not to trade).
• Support will be offered to landlords who provide rent relief to eligible tenants in the form of additional land tax relief of up to 25 per cent as well as potential eligibility to apply for payments as part of a small landlord hardship fund.
• Any pre-existing rent relief agreements with deferred rent repayments will be automatically frozen until 15 January 2022, when the outstanding amount will be added to the deferred rent accrued during the new Scheme;

We will provide further information on the new Scheme once the Regulations have been released.

Our Property Team are currently assisting many tenants and landlords navigate through these challenging times and are readily available to assist with advice, negotiation, mediation and documenting agreed variations to your lease.

If you have any questions relating to the newly enacted CTRS please do not hesitate to get in touch with us.