The new Commercial Tenancy Relief Scheme Regulations 2022 (the Regulations) were issued yesterday. A copy of the Regulations can be accessed here.
As set out in our previous update whilst the Government on 16 January 2022 announced the extension of the rent relief scheme to apply to eligible leases until 15 March 2022 they did not release the relevant turnover periods to apply to be able to determine if a lease was in fact eligible.
The Government has now released the Regulations and determined that for a lease to be eligible for an extension of rent relief the tenant must establish a drop in turnover of greater than 30% for the month of January 2022 as compared to the month of January 2020.
Key Differences
The key differences between the new Regulations and the previous 2021 Regulations are:
- The lease (or licence) must have been in effect on 16 January 2022.
- The rent relief period is for the two months from 16 January 2022 to 15 March 2022.
- The tenant must have suffered a decline in turnover of 30% or more when comparing the month of January 2022 with the month of January 2020.
[There are alternative comparison tests available if the tenant did not carry on business for part or all of January 2020].
- The tenant’s annual turnover must have been less than $10 Million for the financial year ending 30 June 2021.
[If the tenant did not carry on business for all of last financial year, the tenant’s annual turnover must be likely to be less than $10 Million for the financial year ending 30 June 2022].
The tenant’s annual “turnover” for the purposes of determining whether its turnover exceeds $10 Million is not limited to its turnover at the premises.
The tenant’s turnover also includes any internet sales of goods or services.
The tenant’s turnover also includes all Victorian government COVID-19 business support grants received by the tenant during the relevant period (but does not include any Commonwealth government assistance).
There are still grouping provisions. If the tenant is “connected with” or an “affiliate” of another entity or other entities with an aggregated annual turnover of over $10 Million, then the tenant will not be eligible to claim rent relief.
- The new Regulations do not set a deadline for the tenant to make its request to its landlord for rent relief. However, the new Regulations are to be revoked on 15 March 2022. In our view, tenants should be making their requests for rent relief as soon as possible.
- If rent has been deferred under the previous 2020 Regulations or 2021 Regulations and is being paid by monthly instalments, then the tenant can seek a further deferral so that the repayments of deferred rental re-start after 15 March 2022.
Other Provisions
The other provisions of the new Regulations are similar to the previous Regulations.
For example:
- A lease to a listed company or a subsidiary of a listed company is not an eligible lease.
- The tenant must make its request for relief to the landlord containing the information required by the Regulations (such as the tenant’s turnover for the turnover test period, its decline in turnover, and the reduction in rent which would satisfy the minimum requirements of the Regulations).
- The tenant must provide the evidence of its decline in turnover and the statutory declaration required by the Regulations to the landlord within 14 days after making its request to the landlord.
- The landlord must make its offer of rent relief to the tenant within 14 days after receiving the evidence and statutory declaration from the tenant.
- The landlord’s offer must, at a minimum, be proportional to the tenant’s decline in turnover and no less than 50% of the relief must be by way of rent waiver (unless the parties agree otherwise).
- The landlord’s offer must also take into account any other circumstances that the tenant would like the landlord to consider.
- If the tenant is not satisfied with the landlord’s offer (and that offer complies with the Regulations), then the tenant must apply to the SBC for mediation within 14 days of receiving the offer – otherwise the tenant will be deemed to have accepted the landlord’s offer.
- After the tenant makes its request for rent relief and until the amount of rent relief is agreed, the tenant must keep paying the balance of the rent due (for the period between 16 January 2022 and 15 March 2022) at the rate of the minimum amount of relief to which it is entitled based on its decline in turnover. For example, if the tenant’s decline in turnover was 60% and it is entitled to rent relief of 60% (by waiver and deferral), then the tenant must still pay the remaining 40% of the rent as it falls due.
- If rent is deferred, then the landlord must offer the tenant an equivalent extension of tenure (unless the parties agree otherwise).
- Any deferred rent becomes payable by instalments from 15 March 2022 onwards.
- As noted above, any rent that has been deferred under the 2020 or 2021 Regulations can be further deferred so that those payments resume after 15 March 2022.
- The rent cannot be increased during the “protection period” from 16 January 2022 to 15 March 2022 (unless the parties agree otherwise) and any review of rent in that period is voided.
- The tenant is not in breach of the lease for not paying the rent or outgoings (except the rent beyond the minimum rent relief that the tenant is entitled to) during the protection period.
- The tenant is not in breach of the lease for not trading during the protection period.
Conclusion
Please note that the above is only a short summary of the new Regulations.
The Regulations are very complex. The requirements for a tenant to make a compliant request for rent relief and for a landlord to make a compliant offer of rent relief are similarly complex.
The Regulations will apply very differently to the unique circumstances of each lease.
Landlords and tenants should promptly seek legal advice to discuss whether their leases are affected by the Regulations, and how to navigate the requirements under the Regulations.
And anybody who previously participated in the previous ‘versions’ of the commercial tenancy relief scheme, whether as a landlord or a tenant, should seek advice regarding how the Regulations change those existing obligations (i.e. deferred rent recovery, for instance).
This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.
