Extension to Commercial Rent Relief Scheme – Important Changes that Landlords and Tenants should be aware of

On 29 September 2020, the Victorian Regulations providing for rent relief for commercial tenancies (being the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020) (Regulations)) were extended.  The changes made to the Regulations not only extend the commercial tenancy rent relief scheme in Victoria, but also make other important changes which landlords and tenants should be aware of, including:

1. What does the extension to 31 December 2020 apply to?

(a) Rent Relief

The amending Regulations have extended tenant’s rights to seek rent relief beyond 29 September 2020, being the date originally included in the Regulations, to 31 December 2020.

Whilst the dates for rent relief under the Regulations have been extended, where an agreement has been reached for rent relief up to 29 September 2020, tenants will need to make a further request to the landlord in order for the rent relief to be extended to 31 December 2020.

(b) Deferred rent repayment dates automatically extended

Whilst tenants are required to make a request to extend rent relief to 31 December 2020 (if they seek rent relief beyond 29 September 2020), the amended Regulations automatically change the earliest date for repayment of deferred rent, without any requirement for tenants to request this extension.

The Regulations provide that landlords cannot require tenants to repay deferred rent until after 31 December 2020.  This means where parties have entered into an agreement which provides for deferred rent to be repaid after 29 September 2020, the dates for repayment are automatically extended, with repayments to commence after 31 December 2020.

(c) Moratorium on landlord’s right of eviction for non-payment

The Regulations continue to provide protection to tenants of eligible leases, preventing a landlord from evicting a tenant, attempting to renter the premises or accessing any security held by the landlord where the tenant has failed to pay rent or outgoings.  This protection is now afforded from the date of the tenant’s application for rent relief until 31 December 2020.

(d) Rental increases

For eligible leases, landlords will also be prohibited from applying increases to the rent on or before 31 December 2020.

2. Importance of making a timely and compliant request for Rent Relief

(a) Requests should be made urgently

Landlords and tenants should be aware of the change in the process for applying for rent relief.  The Regulations previously provided that a Landlord of an eligible lease must offer rent relief for the period commencing on 29 March and ending 29 September 2020.  However, the Regulations now only require a landlord to offer rent relief for the period commencing on the date the tenant submits a request for rent relief (that complies with the new requirements, discussed further below) and ending on 31 December 2020.

For tenants, this means if an application for rent relief has not been made to a landlord, a request should be made as a matter of urgency as any delay in doing so will reduce the period where a landlord is required to offer rent relief.

(b) Documentation to be provided

Further, the process for applying for rent relief has changed. Tenants must now provide additional information in their request for rent relief, and this written request must be accompanied by additional documentation in support of their request, including:

(i) evidence in relation to the tenant’s participation in JobKeeper, including their original ATO receipt number confirming their participation and the most recent noticed issued to the ATO; and

(ii)  evidence of the tenant’s decline in turnover, including at least one of the following:

(A) extracts from the tenant’s accounting records;

(B)  the tenant’s BAS Statement, relating to the relevant turnover test period;

(C) statements issued by authorised-deposit taking institution in respect of the tenant’s account; or

(D) a statement prepared by a practising accountant.

Tenants must ensure that a request for rent relief complies with the Regulations.  As noted above, the landlord’s obligation to offer rent relief is not triggered until a compliant request for rent relief is submitted by the tenant.  Failure to submit a written request in accordance with the Regulations will mean that a compliant request has not been made, and the tenant’s entitlement to rent relief will not commence until all required information is submitted to the landlord.

(c) Decline in Turnover

When applying for rent relief, the tenant must set out the tenant’s decline in turnover that is associated with the premises, rather than the total decline in turnover suffered by the tenant.  This means where there has been alterations to the tenant’s income as a result of other premises, or internet sales not made from the premises, these changes in turnover will not be taken into account.

The reduction in turnover must be expressed as a whole percentage and based upon the most recent turnover test applying to the tenant.  According to the Regulations, the turnover test to be applied is the actual decline in turnover test for the most recent JobKeeper eligibility period (which will usually be the previous quarter).

(d) What if I have already applied for rent relief?

Where tenants have made an application for rent relief from a landlord, but the request has not met all requirements of the amended Regulations, tenants should urgently make an updated application to the landlord attaching all information required under the amended Regulations.  Failure to do so could mean that the rent relief offered by a landlord only commences at the time the request which complies with the amened Regulations is made.

3. Rent relief must now be proportionate to reduction in turnover

Previously the tenant’s reduction in turnover was one of a number of factors set out in the Regulations which a landlord was required to take into account in making an offer for rent relief.  The amended Regulations now require that an offer for rent relief by a landlord must, at a minimum, be proportionate to the decline in the tenant’s turnover associated with the premises (based upon the most recent turnover test applied to the tenant).

Further, whilst the landlord’s capacity to offer rent relief was previously one of a number of factors to be taken into account in determining rent relief, this factor has now been removed.  This means that the landlord’s financial position is irrelevant in making an offer for rent relief, something which may be difficult for many landlords, particularly where they are reliant on rental income.

4. What if we have already reached an agreement for rent relief?

The Regulations previously provided where a tenant had suffered a material change in their financial circumstances since an agreement for rent relief was made, that tenant could then seek further rent relief.  Whilst this ground remains in place, tenants will also be able to seek further rent relief where:

(a) an agreement previously reached does not provide for rent relief proportionate to their reduction in turnover; or

(b) rent relief is not provided for the period to 31 December 2020.

This means even if a binding agreement has been reached, a tenant may seek to vary that agreement where the rent relief does not provide, at a minimum, rent relief in proportion to the decline in the tenant’s turnover associated with the premises or rent relief up to 31 December 2020.   As a result, landlords and tenants who believe they have a binding agreement may be forced to renegotiate these matters.

It is important to note that any request to vary a binding agreement would only relate to rent relief from the date the subsequent (and compliant) application is made until 31 December 2020, and would not entitle a tenant to alter the agreement for rent relief retrospectively.

5.  What if an agreement can’t be reached?

The Regulations continue to provide a mediation process for landlords and tenants where an agreement for rent relief cannot be reached, however the powers of the Victorian Small Business Commissioner (VSBC) have been strengthened with the VSBC being given the right to make binding determinations.

The new Regulations set out a process allowing a tenant to request the VSBC make a binding order for rent relief in limited circumstances.  To make an application:

(a) the VSBC must have issued a Regulation 20A Certificate in relation to the dispute resolution process which states that:

(i)  a landlord has failed to respond to a dispute notice issued by the VSBC; or

(ii) a landlord has not engaged in mediation in good faith; and

(b) VCAT proceedings have not yet been commenced.

Where the requirements are met, the VSBC will make a decision on the papers providing for rent relief, at a minimum, proportionate to the reduction in the tenant’s turnover as set out in the Regulations.  The introduction of these VSBC powers serve as a warning to all landlords to ensure that they respond to dispute notices in a timely manner, offer rent relief in accordance with the Regulations and negotiate in good faith.

Further information

Landlords and tenants should ensure they understand the amended rights and obligations pursuant to the Regulations when making further requests for rent relief and entering into negotiations.

If you require further advice, in relation to your rights and obligations or require assistance documenting an agreement reached for rent relief, please contact our Corporate & Commercial team.