What Government landlords need to know about the new Commercial Tenancy Relief Scheme

The Commercial Tenancy Relief Scheme Regulations 2021 were made on Tuesday 24 August 2021. These Regulations reintroduce the Commercial Tenancy Relief Scheme that was announced on 28 July 2021, with some differences. The Regulations are taken to have come into operation from 28 July 2021 and continue until 15 January 2022.

We expect many government landlords will have questions about the scheme and what it means for them - we've set out responses to relevant FAQs below:

Does the Scheme apply to my lease?

What is an eligible lease?

The Scheme will apply to your lease if it is an 'eligible lease,' This occurs where the lease meets all of the following criteria:

• the lease is a retail lease or commercial lease or licence, including a sub-lease or sub-licence, entered into for the sole or predominant purpose of carrying on a business at the occupied premises
• the lease or licence was in effect on 28 July 2021
• the tenant is an eligible tenant - see below
• the lease is not an agricultural or farming lease.

Who is an eligible tenant?

The eligibility criteria largely replicate those applicable for the 2020 CTRS and the JobKeeper eligibility criteria. A tenant is an eligible tenant if the tenant:

• on 28 July 2021, carried on a business in Australia, was a non-profit body or a deductible gift recipient
• is an SME entity - their annual GST turnover in the 2020/21 financial year was less than $50 million
• satisfies the decline in turnover test - see below
• is not an excluded class of tenant. This is a long list taken from the JobKeeper scheme. Highlights include:
  • the tenant is connected with, or an affiliate of, one or more other entities - and that group of entities' turnover for the 2020/21 financial year was more than $50 million
  • a publicly listed corporation on an Australian or foreign stock exchange
  • Commonwealth, State or local government body
  • an entity for which a liquidator or trustee in bankruptcy has been appointed.

Government tenants are not eligible for the Commercial Tenancy Relief Scheme.¹

How is decline in turnover calculated?

As in the JobKeeper scheme, a tenant satisfies the decline in turnover test if the tenant's turnover for the turnover test period falls short of the tenant's comparison turnover by 30% or more. Conversely, for non-profit bodies, the threshold is lower at 15%, except for certain major universities and all schools.

Turnover is current GST turnover, with some modifications as made in the JobKeeper Rules. It is no longer just turnover at the premises, but the entity's turnover including online sales.

The method applicable for calculating the decline in turnover depends on the day that the tenant started trading. We've prepared a summary table below to assist with this:

The Regulations also include the 8 alternative tests for calculating turnover that were included in the JobKeeper scheme where certain events occurred during the set comparison period.

What are my obligations and rights as a landlord?

Your obligations are mostly the same as under the 2020 CTRS Regulations - including prohibiting you from evicting the tenant, requiring you to offer rent relief in accordance with the minimum standards, and prohibiting rent increases.

The key changes are:

• Prohibition on eviction for non-payment of rent or outgoings - The tenant is only protected by this if they comply with their rent relief agreement, or if one hasn't been made yet, if the tenant:
  • makes a request for rent relief enclosing the required evidence
  • continues to pay a portion of the rent, reduced by the decline in turnover percentage set out in their request.

Evictions can occur for any other lawful reason. These limits do not apply to the protection from eviction for changing trading hours.

• Rent relief request - the tenant must include the relevant turnover calculations. The tenant can also ask you to take into account their part payments of rent and any other circumstances the tenant would like the landlord to consider.
• Rent relief evidence - the tenant now has 14 days after they make their request to give you the supporting evidence, which must include a statutory declaration from them confirming that the information is true to the best of their knowledge.
• Backdating rent relief to 28 July - this will only apply if the tenant makes their request and gives you the required information by 30 September. Otherwise, the rent relief is applicable from the date of their request for rent relief, unless you agree otherwise. However the protection from evictions still applies from 28 July 2021, regardless of whether and when a request has been made.
• 2020 deferred rent: if you and the tenant deferred rent under this lease (or an equivalent lease) under the 2020 CTRS, the make-up instalments otherwise payable during this rent relief period are paused and restart after 15 January 2022.

Does the mandatory reassessment apply to my lease?

If the tenant requests rent relief from you before 30 September and started trading before 1 April 2021, you will need to do a mandatory reassessment of rent relief.

By 31 October, the tenant needs to provide you with their Q4 2020/21 and Q1 2021/22 turnover information, and calculate their change in turnover. The rent relief agreement is then adjusted to factor in that change in turnover percentage.

What is the dispute resolution process?

The dispute resolution process from the 2020 CTRS is re-introduced with little change. If there is a dispute, either party can refer the dispute to the Victorian Small Business Commission (VSBC). Before a party can commence proceedings in VCAT or a court (other than the Supreme Court) or seek a binding order, that party needs a certificate from the VSBC confirming that mediation has failed or is unlikely to resolve the dispute.

Landlords and tenants have a general obligation to cooperate and act reasonably and in good faith in all associated discussions and actions.

What do I need to do now?

The onus to act largely sits with the tenant. However, we recommend that you prepare for what's next through implementing the following steps:

• Determine whether any of your leases are likely to be 'eligible leases'
• Develop your internal processes and negotiation strategy now for meeting your landlord obligations, in readiness for receipt of tenant rent relief requests
• Get familiar with your rights and obligations under the CTRS, particularly regarding the timeframes applicable for the rent relief process
• Know what action you can't take - such as evicting for non-payment of rent or outgoings or changing hours, or increasing the rent. Have you taken any potentially prohibited action since 28 July 2021? We recommend seeking legal advice to see if any actions you're concerned about are valid or need to be reversed.
• Diarise the mandatory reassessment date of 31 October 2021 if it applies to a lease, to follow up with the tenant.

We are happy to assist Victorian public entities with any negotiations or through providing further answers to questions about CTRS.

The Victorian Small Business Commission also have a range of detailed Frequently Asked Questions available.

Contact our team

The VGSO property team provides a full-service property law and Crown land practice to the Victorian public sector. We can assist with drafting and negotiating all leases and licences, and provide advice on application of the Retail Leases Act 2003 to your transaction.

Please get in touch with our team if you need assistance with property and development issues.

Anthony Leggiero, Lead Counsel
anthony.leggiero@vgso.vic.gov.au

Margaret Marotti, Managing Principal Solicitor
margaret.marotti@vgso.vic.gov.au

Lauren Walley, Principal Solicitor
lauren.walley@vgso.vic.gov.au

Or one of our property and development team members.

The information is of a general nature only and does not convey or contain legal advice. If you would like to obtain legal advice in relation to any matter discussed on this page, please contact us.

Footnotes

¹ Regulation 9(3)(b).
² See Alternative comparison turnover method for new businesses at r 15.