The Victorian Government has recently announced that eligible businesses will be able to benefit from rent relief if they have experienced a loss in turnover of more than 30% during the pandemic, with the introduction of the Commercial Tenant Relief Scheme Act 2021 (“the Act”).
It is currently understood that the Act will align with regulations, which have not yet been released, and that these regulations will largely replicate the regulations that were in place in March 2020 to March 2021 (“the first COVID rent relief scheme”).
With many SMSFs holding commercial or residential property either directly or through a trust, the operation of the Act applies to properties held in both of these entities.
Who does the Act apply and What is an Eligible Lease?
It is important for SMSFs as landlords with commercial premises (‘business real property’ or ‘BRP’) to first determine whether the operation of the Act applies to them and if it does what implications and actions arise. The determination of an eligible tenant will be a one-time test. Once the business can prove they are eligible, they will remain eligible throughout the scheme period, with the proportion of rent relief adjusted in line with their turnover.
Much the same as the first COVID rent relief scheme:
- The Act only applies to an Eligible Lease which is defined at Section 5 of the Act as a retail lease or non-retail commercial lease or licence that is prescribed. This is slightly more flexible than the previous definition for
an eligible lease.
- An eligible tenant must have an annual turnover of less than $50 million; and
- Experienced a decline in turnover of at least 30 per cent.
There is no requirement that the tenant must qualify for the JobKeeper scheme to have an eligible lease.
How will rent relief be calculated?
Eligible tenants will have rent relief calculated by comparing turnover from the final quarter of 2020/21 financial year with turnover from the final quarter of 2018/19 financial year. If the drop in turnover is greater than 30%, the eligible tenant will be entitled to rent relief. The initial rent relief will be determined by the amount of drop in turnover.
The regulations once imposed, will be able to be backdated to a date not earlier than 28 July 2021.
The percentage drop in turnover will assist in determining the amount of initial rent relief available to the tenant. Much like the first COVID rent relief scheme, the tenant will be entitled to a 50% waiver and 50% deferral of rent payable in accordance with the percentage drop in turnover. Any deferral of rent will be added to any outstanding deferral of rent relief from the first COVID rent relief scheme.
What if the tenant already has deferred rent under the first COVID rent relief scheme?
If the tenant is already paying off deferred rent or has an agreement with the landlord as a result of the first COVID rent relief scheme, the existing deferred rent will be frozen until 15 January 2022, at which time the outstanding amount will be added to the deferred rent accrued under this new COVID rent relief scheme.
What benefits are there to Landlords?
For SMSF trustees acting as a commercial landlord and are providing assistance to eligible tenants through the Act, the Government will provide a land tax relief of up to 25%. For a ‘small landlord’ that can demonstrate acute hardship, eligibility may apply for payments from the Victorian Government’s COVID hardship fund.
Can an eligible tenant be evicted?
An eligible tenant under the COVID rent relief scheme cannot be evicted without the landlord obtaining a direction from the Victorian Small Business Commission (VSBC). The VSBC will be able to assist tenant’s and landlords in their negotiations around rent relief if an agreement cannot be reached between the parties.
The VSBC will have the power to:
• Prohibit termination of a lease;
• Change any period under a lease;
• Change or limit rights of a landlord under a lease;
• Modify the operation of a lease; and
• Impose new obligations on landlords or tenants under a lease.
What you should do now
Whilst awaiting the regulations, it is important that landlords and tenant best prepare themselves by taking the following steps:
- Commercial tenants and landlord should enter negotiations as soon as possible (incl. where the tenant is a related party leasing as BRP).
- Collect copies of your lease, as well as any renewal, transfer or other variation documents; and
- For landlords, ask the Tenant to prepare documentation to evidence their decline in turnover in accordance with the Act.