It’s Groundhog Day: COVID-19 and the new CTRS legislation

It’s a bit like Groundhog Day down here in Victoria: another day, another lockdown. Another year, another Commercial Tenancy Relief Scheme. Commercial and retail leasing has become something of a moving target, and we will endeavour to provide you regular, informative updates here on the Tisher Liner FC Law blog.

In our blog post on 29 July 2021, we confirmed the new Commercial Tenancy Relief Scheme (“CTRS”) and accompanying legislation was set to be re-introduced in Victoria, applying retrospectively from 28 July 2021. You can read that blog post here.

We confirm the Commercial Tenancy Relief Scheme Act 2021 (the “2021 Act”) is now available on the parliamentary website and received Royal Assent on 10 August 2021.

As was the case with the “old” CTRS, the legislation is enabling legislation, similar to the 2020 enabling legislation. We will need to wait for the Regulations before we can provide specific details about how the new CTRS will operate. We will provide a further update once the Regulations are introduced.

In the meantime, we provide the following preliminary comments, having regard to the italicised comments made by the Premier in last week’s Press Release: 

• “The protections are backdated to start from when the scheme was announced last Wednesday and mean commercial landlords can’t issue an eviction notice for eligible tenants without obtaining a direction from the Victorian Small Business Commission (VSBC).”

Under the 2021 Act , requests for rent relief under the new CTRS are capable of being backdated to a date not earlier than 28 July 2021. It appears therefore that, read strictly, the new CTRS won’t require landlords to offer rent relief from 29 March 2021 up to 27 July 2021, a period which includes almost all the fifth lockdown, that took effect from 11.59pm 15 July 2021.

• “The protections are backdated to start from when the scheme was announced last Wednesday and mean commercial landlords can’t issue an eviction notice for eligible tenants without obtaining a direction from the Victorian Small Business Commission (VSBC).”

It would appear that a moratorium on evictions is to be re-introduced in relation to eligible leases under the new CTRS. It would be prudent for commercial and retail landlords to tread carefully, particularly before taking action under a lease in relation to, for example, non-payment of rent. We urge you to reach out to us for legal advice before taking any steps, especially with a moratorium now in place. We will provide further details on the moratorium when the Regulations are enacted.

• “Rent relief for eligible tenants will be calculated by comparing their turnover for the final quarter of the 2020/21 financial year with turnover from the final quarter of 2018/19.”

We query how the new CTRS will take into account economic and other factors that may have impacted businesses other than COVID-19, for example, natural market fluctuations. 

• “Tenants will be eligible for the scheme if the drop in turnover is greater than 30 per cent. The percentage drop will also determine the amount of initial rent relief available to the tenant.”
• “A mandatory reassessment of turnover further into the new scheme will support fair treatment for all parties.”
• “Eligibility for the scheme will be a one-time test. Businesses which are eligible at the beginning of the scheme will remain eligible throughout, with the proportion of rent relief adjusted in line with their turnover.”

Eligibility for the new CTRS is still tied to an assessment of decline in turnover.

Curiously, the 2021 Act’s  definition of “eligible lease” now provides greater flexibility than the 2020 enabling legislation, presumably because the Federal JobKeeper Scheme is now at an end. The 2021 Act does not flag a date by which the lease must have been in effect, which is distinct from the 2020 enabling legislation.

It would appear that once a tenant is eligible, their rent relief will be fixed for the duration of the relevant period. We query what will be involved in the so-called “mandatory reassessment of turnover further into the new scheme”. Hopefully the  imminent Regulations will provide further detail.

• “For eligible applications under the new scheme where there is also an agreement already in place from the first Commercial Tenancy Relief Scheme, existing deferred rent repayment requirements will be frozen until 15 January 2022, when the outstanding amount will be added to the deferred rent accrued during the current Scheme.”

This is a crucial point. If a tenant is eligible under the new scheme and there is already an agreement regarding rent deferrals under the “old” CTRS, existing deferred rents will seemingly be frozen and cannot be collected until 15 January 2022. We query how this will affect landlords and tenants alike, especially where leases may be reaching their termination dates or up for renewal. We also query the general economic constraints of deferred rents, on landlords and tenants alike.

• “Tenants and landlords are encouraged to enter negotiations directly, with the VSBC available to provide mediation if parties cannot reach a satisfactory agreement.”

As noted in our previous blog, mediation in relation to the new CTRS is to become available via the Victorian Small Business Commissioner (“VSBC”). However, it remains to be seen whether the VSBC will have any powers in relation to disputes under the “old” Commercial Tenancy Relief Scheme.

• “To help landlords that are doing the right thing by eligible tenants, the Government will provide land tax relief of up to 25 per cent, in addition to any previous relief, at an estimated cost of $100 million.
• Small landlords who can demonstrate acute hardship will be eligible to apply for payments as part of a $20 million hardship fund.”

It would appear the hardship fund has been slashed from the $80 million initially proposed. It remains to be seen what eligibility criteria a landlord will need to meet in order to demonstrate “acute hardship”.

If you require advice regarding land tax relief we encourage you to speak to one of our experienced property lawyers.

We will provide a further update regarding the new legislation once further information is to hand and the Regulations become available.

Please do not hesitate to reach out to us for tailored legal advice in relation to the new CTRS, especially before taking action under a lease in relation to, for example, non-payment of rent, and in responding to, negotiating or drafting requests for or terms of rent relief.

View our past blogs on the CTRS:

COVID-19 and the new Commercial Tenancy Relief Scheme

COVID-19 and the New Changes to Leasing

Need extra time on your retail lease? This may help you 

COVID-19  – Commercial Tenancy Relief Scheme to be extended (again)

Amendments to the Commercial Tenancy Relief Scheme

COVID-19 Lease Variations – How to document it properly 

COVID-19 Lease Update – The Regulations are in. It’s time to negotiate in good faith 

Watch our past webinars on the CTRS:

TLFC Law Lunchtime Briefing: Post Commercial Tenancy Relief Scheme (CTRS) – What’s next? 

TLFC Law Lunchtime Briefing: Commercial and Retail Lease Update 

If you have any questions in relation to the reintroduced Commercial Tenancy Relief Scheme, if you need advice or assistance with rent relief, if you have a complicated variation to document, or if you otherwise are a landlord or tenant that would like more information or advice on the COVID-19 leasing changes or leasing generally, please contact Angela Kordos or a member of our Property Law Team.