Here we go again: New Victorian commercial tenancy relief scheme announced

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By Pablo Fernandez, Partner and Matt Minas, Lawyer

There is an update to this article.  Please see here.

On 28 July 2021, the Victorian Government announced a new (or perhaps, an extended) commercial tenancy relief scheme (New Scheme). While new legislation on the topic was not altogether unexpected, we were somewhat surprised that unlike its New South Wales counterpart, the Victorian Government has chosen to mandate rent relief and force landlords to provide it (where the criteria are met).

What we know

At this stage, details of the New Scheme are scant, however we know from the press release that:

  • rent relief will be mandatory for eligible leases where the tenant is a small to medium sized business which has:
    • an annual turnover of less than $50m; and
    • experienced a decline in turnover of at least 30% due to COVID-19;
  • it is not yet clear what an ‘eligible lease’ will be or how the decline in turnover test will be applied (see below notes);
  • landlords will be required to provide rent relief in the form of rent waivers and rent deferrals which are proportionate to the tenant’s reduction in turnover;
  • at least half of the rent relief must be in the form of a rent waiver with the remainder to be provided as a rent deferral;
  • the Victorian Small Business Commission (VSBC) will provide a mediation service;
  • landlords will be unable to lock out tenants without a determination from the VSBC;
  • support will be offered to landlords who provide rent relief to eligible tenants;
  • legislation will give effect to the New Scheme, which will apply from today, 28 July 2021; and
  • an $80m ‘hardship fund’ will be provided for landlords who provide rent relief to eligible tenants.

Below are some of our preliminary thoughts on the New Scheme, based on what we know so far.

Eligibility

The previous iterations of the commercial tenancy relief scheme (2020 CTRS) relied on the JobKeeper program to determine tenant eligibility for rent relief. Now that the JobKeeper program is no longer in operation, aside from the criteria mentioned above, it remains to be seen how eligibility will be determined.

The 2020 CTRS only applied to leases entered into before 29 March 2020. Based on the language used in the press release, we consider that the New Scheme may also apply to leases entered into after 29 March 2020.

One particular question we have is what the comparison period will be for the purpose of calculating the tenant’s decline in turnover. The press release refers to ‘pre-pandemic’ levels of turnover, but if the New Scheme is to apply to leases entered into since then, there will need to be reference to a more recent period.

Retrospective operation

The New Scheme will apply retrospectively from the date of its announcement on 28 July 2021. This means that landlords who take action now to terminate leases etc for existing breaches, before the New Scheme is legislated, may be opening themselves up to claims. While there is currently no legislation in force prohibiting such termination, the New Scheme will be retrospective to 28 July 2021.

As the New Scheme will have retrospective effect, we can only assume that a tenant’s entitlement to relief will commence on 28 July 2021, rather than as at the date they make a compliant request for rent relief (which was the position under the later versions of the 2020 CTRS).

The Minister for Small Business (Minister) advised that it is expected that the New Scheme will run until January 2022. We do not know whether eligible tenants will be entitled to relief in respect of this entire period, or whether they will only be eligible for relief during periods of COVID-19 restrictions (and if so, what level of restrictions).

Legislation

Many of the details confirmed in the press release reflect the 2020 CTRS. This should mean that the New Scheme will likely take a form that is very similar to the 2020 CTRS.

Accordingly, we expect that the New Scheme will be introduced by way of new enabling legislation empowering the Minister to make regulations to administer the New Scheme. The regulations will govern most of the New Scheme, so that they can be amended quickly without being subject to the legislative process and the scrutiny of Parliament.

Parliament next sits from 3-5 August 2021 and then from 17-19 August 2021. We expect enabling legislation to be passed some time in August with the regulations to follow shortly thereafter.

We will provide a more thorough update once the New Scheme is released. If you have any questions in the meantime, please get in contact. We would be pleased to assist.

For further information, please do not hesitate to contact us.

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