In this article, senior associate Helen Wu looks at the new rent relief measures announced recently by the New South Wales and Victorian governments.
In the March 2021 edition of Fundamental, we provided a summary of rent relief periods across all States and Territories, all of which ended in or before March 2021. Since then, Victoria has had three more lockdowns while Greater Sydney is currently in a 10-week lockdown.
It comes as no surprise the New South Wales and Victorian governments have re-introduced rent relief beyond March 2021.
New South Wales
On 14 July 2021, the New South Wales Parliament passed the Retail and Other Commercial Leases (COVID-19) Regulation. Unlike its predecessor, the new regulation only seeks to prevent landlords from terminating or enforcing leases for a tenant's breach of the lease.
The new regulation does not prescribe further rent relief as many businesses had hoped.
What should landlords know about the new regulation?
- During the prescribed period, landlords cannot take prescribed action against impacted tenants on the grounds of a prescribed breach unless the matter has been mediated. This restriction only applies to leases entered before 26 June 2021.
- The prescribed period is 13 July 2021 to 20 August 2021.
- 'Prescribed action' means taking action under the lease, including evicting the tenant, making claims for damages, re-entry, and claiming on bank guarantees and security bonds.
- 'Prescribed breach' means failure to pay rent or outgoings or failure to open for business during the hours specified in the lease.
- 'Impacted tenant' means a tenant who qualifies for a Micro-Business COVID-19 Support Grant, COVID-19 NSW Business Grant, or Job Saver Grant and has a turnover of less than $50 million in the 2020-2021 financial year.
- Despite the above, the regulation does not prevent the parties from agreeing to take a prescribed action or to terminate the lease or prevent the landlord from taking action on non-COVID pandemic related grounds.
On 28 July 2021, the Victorian Government announced the reintroduction of the commercial tenancy relief scheme which was in place in 2020 but with some variations. On 24 August 2021, the Commercial Tenancy Relief Scheme Regulations were published which set out the working details of the new scheme.
Like the 2020 scheme, the new scheme is available to small and medium business with an annual turnover of less than $50 million, and the rent relief must be proportional to the tenant's reduction in turnover. However, unlike the 2020 scheme, the eligibility test will vary given Jobkeeper is no longer available, and the new scheme requires the decline in turnover to be at least 30 percent (or 15 percent for an ACNC registered charity) due to COVID. Again, as with the 2020 scheme, at least 50 percent of the relief amount must be waived and payment of the balance relief amount deferred.
The rent relief period under the new scheme is backdated to commence 28 July 2021 and will end 15 January 2022. A moratorium on evictions due to breach for non-payment of rent also applies for this period.
Other key features of the new scheme include:
- If the tenant began trading (whether at the premises in question or not) before 1 April 2021, the tenant has the discretion to choose any consecutive three month period between 1 April 2021 and 30 September 2021 for turnover comparison over the same three month period in 2019. If the tenant began trading on or after 1 April 2021, the parties must negotiate in good faith on the turnover test period.
- Despite the above, the Regulations also prescribe various scenarios to attempt to address irregularities in trading patterns in the last 18 months.
- The moratorium on evictions and a landlord's right to claim against securities held only applies if the tenant has already sought rent relief or has complied with any previous rent relief agreement.
- Strict timeframes apply as to when the tenant must lodge a request for rent relief and provision of evidence to support the application for rent relief.
- If the tenant applies for rent relief on or before 30 September 2021, the rent relief period commences 28 July 2021. Otherwise, it commences on the date of the tenant's application.
- As with the 2020 scheme, payment of deferred rent and scheduled rent review won't commence until after the end of the rent relief period.
- Payment of deferred rent granted under the 2020 scheme which falls within the new rent relief period is not payable until after 15 January 2022.
- Unlike the 2020 scheme, a landlord may apply to the Victorian Small Business Commission for an enforceable determination to evict a defaulting tenant.
What should a landlord do if approached by a tenant seeking further relief under this new scheme?
With the new scheme prescribing relatively tight timeframes to both applying for and responding to rent relief applications, we recommend parties act expediently. We also encourage parties to continue negotiations in good faith. Like the 2020 scheme, the new scheme operates under the same overarching principles of working together and in good faith.
If you require specific advice and assistance understanding what the new relief requirements are and what you should do next, please contact a member of our Real Estate team.