On 24 August 2021, the Commercial Tenancy Relief Scheme Regulations 2021 (“the Regulations”) were released. These Regulations are different from the 2020 Regulations and are complex. We aim to break down some of the key provisions in this blog.
- When will the Regulations operate?
Between 28 July 2021 and 15 July 2022.
- Eligible Lease
The Regulations apply to an Eligible Lease. An Eligible Lease is a lease that:
- was in effect on 28 July 2021 (this includes leases renewed or extended on substantially the same terms after this date);
- is not subject to any of the exclusions (notably agricultural leases or leases where the tenant is a listed corporation or a subsidiary of one); and
- under which the tenant is an eligible tenant
- Eligible Tenant
The Regulations define an Eligible Tenant as being an entity that as at 28 July 2021:
- is an SME entity (with turnover in 2020/21 of less than $50,000,000);
- have, carried on business (or been a non-profit body or deductible gift recipient);
- not been subject to any of the numerous exclusions; and
- satisfies the Decline in Turnover Test.
- Decline in Turnover Test
The Decline in Turnover Test will be satisfied if the tenant’s turnover in the Turnover Test Period was at least 30% lower than its Comparison Turnover.
Turnover is, for all intents and purposes, defined in the same way as GST turnover, varied to specifically include state government COVID grants and to exclude federal government grants.
The Turnover Test Period and Comparison Turnover will depend on the day the tenant commenced trade and is summarised in the table below:
|DATE THE TENANT FIRST COMMENCED BUSINESS (WHETHER FROM THE PREMISES OR OTHERWISE)||TURNOVER TEST PERIOD||COMPARISON TURNOVER|
|Prior to 1 April 2019||Tenant's choice of any three consecutive calendar months between 1 April 2021 and 30 September 2021||The three corresponding months in 2019|
|1 April 2019 - 31 March 2020||Tenant's choice of any three consecutive whole calendar months between 1 April 2021 and 30 September 2021||The sum of the tenant’s turnover for each month of trade to 31 March 2020, divided by the number of months, multiplied by 3 (3-month average)|
|1 April 2020 - 31 March 2021||Tenant's choice of any three consecutive whole calendar months between 1 April 2021 and 30 September 2021||The sum of the tenant’s turnover for each whole month of trade to 31 July 2021, divided by the number of whole months, multiplied by 3 (3-month average)|
|After 31 March 2021||A period agreed by landlord and tenant following good faith negotiations||The tenant’s total turnover to 31 July 2021, divided by the number of days trade, multiplied by 92|
The above test is not exhaustive and special rules do apply in certain situations – for example if the tenant’s business had irregular income or where the tenant is a sole trader or small partnership and one of the partners (or the sole trader) did not work during the comparison period due to injury or illness.
- Tenant’s request for rent relief
Regulation 27 deals with rent relief requests and the consequent obligation on the landlord to make an offer of rent relief.
A tenant under an Eligible Lease may request rent relief directly from their landlord. The request must be in writing and accompanied by a statement from the tenant:
- that the tenant is an Eligible Tenant;
- that the tenant satisfies the Decline in Turnover Test (including setting out details of the turnover test period, comparison period and decline and rent relief sought); and
- any other circumstances that the tenant would like the landlord to consider when making a relief offer.
Within 14 days after making the request, the tenant must provide evidence to the landlord evidencing the turnover figures stated in such request by providing at least one of the following:
- extracts from the tenant’s accounting records;
- the tenant’s business activity statements lodged with the ATO;
- statements issued by an ADI in respect of the tenant’s bank account; or
- a statement prepared by a practising accountant.
Differing from last year’s Regulations, the tenant must also now provide a statutory declaration that the information they are providing is true.
- Landlord’s offer
If the tenant submits a compliant request, then, within 14 days after receiving the required evidence, the landlord must submit a rent relief offer in writing to the tenant.
The offer must:
- be for the rent relief period;
- at a minimum, must be proportional to the tenant’s decline in turnover;
- provide that no less than 50% of the rent relief offered is in the form of waiver (with the balance to be deferred); and
- take into consideration any other circumstances that the tenant has requested.
The rent relief period is determined as follows:
- if the tenant makes its application on or before 30 September 2021, the rent relief period will be 28 July 2021 – 15 January 2022;
- if the tenant makes its application and provides evidence after 30 September 2021 the rent relief period will be from the date of the tenant’s request until 15 January 2022.
- Reaching an agreement
The parties must negotiate in good faith with a view to agreeing on the rent relief to apply during the rent relief period.
- agreement is not reached within 14 days of the offer being made; and
- the landlord’s offer met the minimum requirements noted above; and
- the tenant has not referred the matter to the Small Business Commissioner for assistance within 14 days of the offer being made,
then the tenant will be deemed to have accepted the landlord’s offer.
There are also provisions regarding lapses requests, mandatory reassessment of rent relief, restrictions on rent increases and additional protection for tenants.
Whether you are a landlord or tenant, it is important to understand your obligations and rights under the new Regulations. If you would like further information and tailored advice on your lease and specific circumstances, please contact one of our Real Estate lawyers today.
Insight written by Sandra Le