Commercial Leases: Extension of the Commercial Tenancy Relief Scheme to 28 March 2021
The update to the Commercial Tenancy Relief Scheme (CTRS) amends the end date of the existing regulations from 31 December 2020 to 28 March 2020 (Extended Period).
To request rent relief in the Extended Period, a commercial Tenant must write to its Landlord and provide further information that fully complies with the requirements of the extended Scheme.
During the extended period:
- A Tenant is only entitled to rent relief from the date they make a written application to their Landlord that contains all of the required information. For example, if a Tenant requests rent relief on 1 February 2021 but does not provide all of the necessary information until 15 February 2021, then the Landlord is only obliged to make a rent relief offer from 15 February 2021;
- If a Tenant has already applied for rent relief prior to 31 December 2021 that spans a period before this date, a Tenant should consider immediately making another written rent relief application to the Landlord ensuring that it provide all the information required under the extended Scheme. This action is strongly advised because it is unlikely that a rent relief application made before 31 December 2021 for a period after this date will have complied with the requirements of the extended Scheme;
- A Landlord is required to offer rent relief that is in proportion to the fall in turnover experienced by their eligible Tenant. For example, if a Tenant’s turnover has fallen by 40%, the required rent relief is to be at least 40% of the tenant’s current rent, with at least 50% of the rent relief made up of a rent waiver. To apply for rent relief from 1 January 2021 to 28 March 2021, it is not necessary to wait for turnover information for those months.
What if a Commercial Tenant cannot afford rent, what should it do?
- Apply for rent relief
The Tenant should apply for rent relief to its Landlord in writing as soon as possible. A Landlord only needs to offer rent relief in proportion to the Tenant’s fall in turnover from the date the Tenant applies in writing until 28 March 2021. The Tenant’s request must be accompanied by:
- a statement confirming that the Tenant’s business is a small to medium enterprise;
- a statement that the lease is an ‘eligible lease’ and is covered by the CTRS; and
- evidence that the Tenant is taking part in the JobKeeper scheme (that the Tenant is entitled to a JobKeeper payment under the JobKeeper Rules).This can include:
(A) Business Registration for JobKeeper Wage Subsidy ATO receipt number issued by the ATO (this can be requested from the ATO); and
(B) a copy of the most recent notice to the ATO under the JobKeeper Rules (private details including tax file numbers and employee names should be deleted before providing this information to the Landlord); and
(C) a statement of decline in turnover associated with the premises (expressed as a whole percentage and calculated using the actual decline in turnover test that includes at least one of the following:
- extracts from accounting records; or
- business activity statement(s) that relate to the relevant turnover test period; or
- statements issued by an authorised deposit-taking institution that relate to the Tenant’s account; or
- a statement prepared by a practising accountant.
- Landlord’s Offer
After a Tenant makes a written request, the Landlord must offer rent relief within 14 days, unless a different time frame has been agreed in writing. Unless the parties agree in writing, no less than 50 per cent of the rent relief offered by the Landlord should be in the form of a rent waiver.
The rent relief must, at a minimum, be in proportion to the decline in the turnover associated with the premises and the offer must apply from the date the Tenant applied to its Landlord in writing until 28 March 2021.
When offering rent relief, the Landlord is required to take into account:
- any waiver or reduction of outgoings they have already provided to the Tenant;
- any waiver or reduction of outgoings or other expenses for the premises provided by other parties (e.g. water company or council); amd
- whether the Tenant’s capacity to pay rent under the lease would be compromised by not being offered sufficient relief.
If agreement is reached, make sure it is in writing. The parties can choose to do this as a variation of the lease, but this is not necessary if the parties have a written agreement for rent relief.
What if you are a commercial Landlord and your Tenant has stopped paying rent?
The Landlord may attempt to contact the Tenant to determine the nature of their failure to pay rent. If a Tenant has followed the process for requesting rent relief under the CTRS and is paying the amount of rent and outgoings agreed to with the Landlord, the Landlord is prohibited under the CTRS to:
- evict or attempt to evict a Tenant; or
- re-enter or otherwise recover the premises or attempt to do so.
If the Landlord breaches their obligations under the CTRS, substantial penalties can be imposed by the Small Business Commissioner.
In PS Market Pty Ltd v Brijcam Nominees Pty Ltd (Building and Property)  VCAT 1468 Member Kincaid refused to grant an injunction to a Tenant that was not entitled to Jobkeeper, and accordingly was not entitled to rent relief under the CTRS. In those circumstances, it was not unconscionable conduct for the Landlord to refuse to provide rent relief.
In refusing the application, Member Kincaid made three important findings
- the Tenant itself was not an employer of staff in the relevant business. In this case, the Tenant was a member of a group of companies and staff were employed by the Tenant’s parent company;
- the Tribunal also considered an argument that the Tenant was an eligible business participant and rejected that argument because of difficulties in the Tenant’s affidavit material;
- the Tribunal rejected the argument maintained by the Tenant that it was unconscionable for the Landlord to refuse to provide rent relief during the pandemic, even if the Code and the CTRS did not strictly apply.
In Filomeno Nominees Pty Ltd v Crown Group Pty Ltd (Building and Property)  VCAT 81, Senior Member Forde held that the Tenant was not entitled to protection from re-entry under Regulation 9 of the CTRS because it had not made an application for rent relief that complied with the requirement of Reg 10(2). The Tribunal required strict compliance with Regulation 10(2) of the CTRS before the Tenant could be is entitled to protection from re-entry.
If you want to know more about the CTRS and what impact this may have on your commercial lease, please get in touch with one of our expert lawyers.