Commercial Tenancy Relief Scheme Expanded

 

More Victorian small and medium businesses that have experienced a loss in turnover of more than 30% during periods of COVID restrictions 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 before 1 April 2019.

 

The new Commercial Tenancy Relief Scheme (CTRS) is available for an "eligible lease", which includes a retail or non-retail commercial lease or licence that was in effect on 28 July 2021 under which the tenant (which includes licensees) is an operator of a small to medium businesses (with annual turnover of less than $50 million) and is eligible under the scheme.

 

Broadly, this makes it a requirement for commercial landlords to provide proportional rent relief in line with a business's reduction in turnover, by landlords providing at least half of any sum of rent relief by a waiver.



What eligibility rule has been expanded?

The Commercial Tenancy Relief Scheme (CTRS) was reintroduced in July 2021 to ease pressure by providing rent relief for eligible tenants.  The CTRS rent relief program applies from the announcement date on 28 July 2021 and will continue until 15 January 2022.

 

Under the original eligibility requirements of the CTRS, businesses (including sole traders) had to prove they had lost significant revenue by comparing the final quarter of FY2020-21 to the final quarter of FY2018-19.

 

Now, more businesses should now be eligible for rent relief under recent changes to expand the eligibility requirements for tenants.  For tenant businesses which started trading before 1 April 2019, tenants are now allowed to choose any three consecutive months between 1 April and 30 September 2021, and then compare this amount to the income for the corresponding period between 1 April and 30 September 2019.

 

For other tenant businesses which started trading after 1 April 2019, it is necessary for the business to use different comparison periods, these have been summarised in the CTRS Comparison and turnover periods tableclick here.

 


What rent relief will be provided to eligible tenants?

  • Landlords will be required to provide rent relief to eligible tenants which is proportionate to the tenant's decline in turnover, to be adjusted throughout the CTRS in line with the tenant's turnover.
  • At least 50% of any rent relief provided to tenants must be in the form of a rent waiver and the other 50% of the rent relief must by way of a rent deferral.
  • There will be a freeze on rent increases until 15 January 2022.
  • Landlords are prevented from evicting eligible tenants without a determination from the Victorian Small Business Commission, and both parties can access free mediation services (explained below).

For eligible tenants under the new CTRS where there is also a rent relief agreement in place pursuant to the first release of the CTRS scheme (in May 2020), existing deferred rent repayment requirements will be 'frozen' until 15 January 2022, when the outstanding amount will be added to the deferred rent which accrues during the new CTRS.  In the event a dispute arises between the landlord and a tenant, the parties will be able to refer the dispute the VSBC for mediation (explained below).

 


What transitional arrangements exist between the first release of the CTRS scheme (in May 2020) and the current CTRS scheme?

 

Many tenants and landlords will have agreements or arrangements in place that were negotiated under the first release of the CTRS scheme from May 2020.  Tenants should continue to make genuine efforts to pay their rent as previously negotiated.

 

We must note that if a business was eligible for the first release of the CTRS scheme (in May 2020), the tenant is not automatically eligible for the current CTRS scheme and must request rent relief again under the new rules from their landlord.  Tenants and landlords are encouraged to enter negotiations as soon as possible.

 

Where a compliant request for rent relief has been made under the first release of the CTRS scheme (in May 2020) and where there is also an agreement already in place, the existing deferred rent repayments are frozen until 15 January 2022.  At this time, the tenant must resume repaying the previously deferred rent in the same instalments and frequency as previously deferred..


What mediation services are available under the CTRS scheme?

 

Tenants and landlords will be encouraged to enter negotiations directly, with the Victorian Small Business Commission (VSBC) available to provide mediation if parties cannot reach satisfactory agreement.

 

A tenant and landlord must negotiate 'in good faith' to reach an agreement that they are both happy with.  There is no cost to small business tenants or their landlords for mediation to help resolve a dispute over rent relief.  If a landlord and tenant reach agreement at mediation, they can sign binding Terms of Settlement.

 

Tenants and landlords can contact the VSBC on 13 87 22 or applications can be made through the Victorian Small Business Commission website.

 

If a small business tenant or landlord has already submitted a mediation application to the VSBC for help to resolve a dispute over rent relief and now wants to request further rent relief, the tenant or landlord should contact the VSBC dispute resolution officer managing their dispute matter to find out what further information they might need to provide.

 

If mediation fails to resolve a dispute over rent relief, the VSBC can issue a certificate stating that mediation has failed.  The landlord or tenant may then be able to file an application with Victorian Civil and Administrative Tribunal (VCAT) (click here) to ask for a rent relief order..


What supports are available to a landlord who provides rent relief to their tenant?

 

A $120 million package to support landlords who provide rent relief to their commercial tenants was announced on 5 August 2021.  The package is made up of a $20 million Commercial Landlord Hardship Fund and $100 million to support land tax relief of up to 25 per cent for landlords who support their tenants.  

 

Details of the Commercial Landlord Hardship Fund have not been released at this time, however the details should be provided soon on the Business Victoria website.

 


Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.