New Rent Relief Regulations for Commercial Leases

As flagged in my earlier article, the Commercial Tenancy Relief Scheme Regulations 2021 are now in effect and set out the requirements for rent relief for eligible tenants and eligible leases and licences. Unfortunately the new Regulation are (in my view) more difficult to follow. Whilst some of the key provisions are listed below, readers should seek legal advice about the new rent relief rules as they are complex and this article does not cover all of the requirements.

Eligible lease – The Regulations apply to eligible leases, being commercial leases or licences:

  1. that are in effect on 28 July 2021; and
  2. under which the tenant is an eligible tenant; and
  3. are not excluded (agricultural leases or leases with tenants that are listed companies).

Eligible tenant – A tenant is an eligible tenant if it:

  1. as at 28 July 2021, carried on business or was a non-profit or deductible gift recipient; and
  2. is an SME entity (with an annual turnover of less than $50 million for FYE 30 June 2021); and
  3. satisfies the decline in turnover test; and
  4. is not subject to any of the specified exclusions (for example if the tenant is an Australian government body, a company in liquidation or a bankrupt individual).

Decline in turnover test – The eligible tenant must satisfy the decline in turnover test:

  1. If the tenant’s turnover for the turnover test period is at least 30% less than its turnover during the comparison turnover period, then the tenant satisfies the decline in turnover test and is entitled to make a request for rent relief.
  2. Turnover is essentially GST turnover plus any state government COVID grants (although not federal government grants), and includes all of the tenant’s turnover such as turnover from the tenant’s other premises and from online sales.
  3. If the tenant commenced business (whether from the premises or other premises) prior to 1 April 2019, then the tenant may choose any 3 consecutive whole calendar months between 1 April 2021 and 30 September 2021 as its turnover test period. That turnover test period is then compared to those 3 corresponding months in 2019 (the comparison turnover) to determine the decline in turnover.
  4. There are different rules/tests for tenants which commenced business after 1 April 2019 and for ACNC-registered charities.

Tenant’s request for rent relief – Must be in writing and:

  1. If the tenant seeks rent relief from 28 July 2021 then it must make the request and provide all the specified evidence, including a statutory declaration with the required statements, before 30 September 2021.
  2. The tenant’s request may include “other circumstances” the tenant would like the landlord to consider when making its offer.
  3. The request should be made even if the parties have already commenced negotiations, otherwise the tenant will be ineligible for rent relief for the period from 28 July 2021.
  4. A request can be made after 30 September 2021, but the rent relief will only apply to the period from the date that the request and all of the required evidence is provided.
  5. If the required evidence isn’t provided by the tenant within 14 days of its request, the request will lapse, however the tenant may make a further request. If 3 requests lapse the tenant will lose its right to rent relief.

Landlord’s offer of rent relief – Must be made within 14 days of the tenant’s compliant request (ie, with all the required evidence) and must:

  1. relate to up to 100% of the rent payable during the rent relief period,
  2. at a minimum be proportional to the tenant’s decline in turnover,
  3. half of the rent relief offered must be a waiver (unless both parties agree in writing),
  4. take into account any “other circumstances” that the tenant had requested, and
  5. relate to the rent relief period, being:
    •  if the compliant request is made by 30 September 2021 – the rent relief period is 28 July 2021 to 15 January 2022;
    • if the compliant request is made after 30 September 2021 – the rent relief period is from the date of the compliant request to 15 January 2022.

Deemed acceptance of landlord’s offer – The tenant is deemed to have accepted the landlord’s offer if by the 15th day after the landlord’s offer:

  1. the parties haven’t reached an agreement for rent relief; and
  2. the tenant hasn’t filed an application to the Small Business Commission; and
  3. the landlord’s rent relief offer complied with the minimum relief requirements.

Some (of the many) other provisions of note include –

  1. Rent increases prohibited – For the period from 28 July 2021 to 15 January 2022 unless agreed in writing and rent reviews are “voided”.
  2. Deferred rent – There are specific rules in relation repayment of deferred rent, including that if any rent is deferred the landlord must offer the tenant an extension to the term of the lease, so that if 3 months’ rent is deferred, the lease term is extended for 3 months.
  3. Re-assessment of rent relief required – The tenant must, prior to 31 October 2021, apply for re-assessment of rent relief where a rent relief agreement has been made, the tenant made a request for relief prior to 30 September 2021 and the tenant began trading before 1 April 2021. If the tenant’s decline in turnover for the re-assessment turnover test period (being the quarter ending on 30 September 2021) differs from the initial decline in turnover, then from 31 October 2021 “any part of a rent relief agreement that is based on the tenant’s decline in turnover is deemed to be adjusted for the reminder of the rent relief period so that it is instead based on the tenant’s change in turnover”.
  4. Protection against breach for non-payment of rent or outgoings – An eligible tenant under an eligible lease will not be in breach if it does not pay rent or outgoings during the protection period if it has made a compliant request for rent relief and continues to pay the non-rent relief portion of rent (after deducting the minimum rent relief amount which the landlord is required to offer in accordance with the tenant’s decline in turnover), or if it is paying rent in accordance with a rent relief agreement, or if it is unable to trade due to sickness, injury or “natural disaster”.
  5. False information – It is an offence under the Regulations for either the landlord or the tenant to provide false or misleading information.

Author: Cathy Drake