By Ron Cohen

29 September 2021

We would like to thank everyone for attending the Lunchtime Briefing on the 2021 Commercial Tenancy Relief Scheme (CTRS)

Chaired By Ron Cohen, Principal, and presented by Rob Oxley, Principal and Angela Kordos, Senior Associate.

If you were unable to attend this session, you are welcome to watch the recording at your convenience.

Passcode: V8Mx1WQ%

The slides are also available. Please click here to view the PowerPoint Slides.

 

We had numerous questions regarding this topic. Please see below the Q&A.

1. If a tenant has emailed a landlord a request for rent relief prior to the new legislation commencing, and the landlord’s response was to reject the tenant’s request due to no evidence being provided, does the tenant need to submit a new request?

The short answer is that yes, the tenant must make a new, compliant  request under the new regulations in accordance with the requirements under Regulation 27.

 

2. Can a tenant claw back rent relief retrospectively as at the 31 October 2021 reassessment date?

No, the mandatory reassessment as at 31 October 2021 does not allow a tenant to subsequently become eligible and to clawback rent relief retrospectively if it was not previously eligible. The purpose of the reassessment date is to provide a mandatory check-in point where a rent relief request was made prior to 30 September 2021, in order to assess whether the circumstances have changed and if rent relief should be adjusted.

 

3. Where the tenant does not qualify for rent reduction under the new Scheme, does payment of deferred rent from the 2020 Scheme still get frozen?

As a general note, if the lease is an eligible lease, rent cannot be increased during the protection period and any increase that would have otherwise applied is voided and can never be claimed by the landlord. The prohibition applies to eligible leases irrespective of whether the tenant has requested rent relief under the 2021 Scheme. So it would seem that a tenant must satisfy the decline in turnover test in order to be protected under the 2021 Scheme, but they need not have applied for rent relief under the 2021 Scheme in order for the prohibition to apply.

 

4. Does regulation 35 (2) mean that the rent can be increased if the tenant agrees to the rent in writing?

A landlord under an eligible lease must not increase the rent payable under their lease at any time during the protection period. Having said that, yes, it is the case that Regulation 35 (2) effectively allows the landlord and the tenant under the eligible lease to agree in writing that in relation to that eligible lease the rent can be increased during the protection period. You should reach out to us for tailored legal advice before taking steps in this regard.

 

5. What is the latest date the tenant can provide financials assuming their request is sent through on the 30th of September 2021?

We would recommend erring on the side of caution in ensuring that all financials and evidentiary material are submitted by 30 September 2021.

 

6. If a tenant hasn’t paid rent and outgoings and has not submitted a compliant request can you issue a default notice?

We strongly encourage you to seek tailored legal advice before taking action to issue a notice of default in the circumstances of the pandemic, even if you believe that your lease is not an eligible lease.

 

7. Regarding eligible tenants of rent relief, the Small Business Commission says that rent increases are not able to be postponed. Does this mean that the increase is completely waived and never able to be charged to the tenant, even when the rent relief Scheme ends?

This is correct, rent cannot be increased during the protection period if the lease is an eligible lease, and any such increase that would have otherwise applied is voided and can never be claimed by the landlord.

 

8. Where a major shopping centre has grossed up the rent to include outgoings does the rent relief need to include outgoings?

Yes, if the rent under an eligible lease is a gross, outgoings-inclusive rent, then the rent relief offered must also be inclusive of outgoings.

 

9. How do we know which comparison turnover period and turnover test period applies?

The comparison turnover period and turnover test period relevant to a tenant to demonstrate their eligibility for rent relief depends on when the business started. There are different tests for different businesses, depending on when they commenced. We encourage you to reach out for tailored legal advice.

 

10. A non-eligible tenant under a non-eligible lease has sublet to an eligible tenant under what may be an eligible sublease. Does the sublessor need to provide relief to the subtenant, and does it have a claim against the head lessor?

We would need to see the head lease and the sublease to provide tailored advice in relation to the head lease. As to the question as to whether the sub-lessor needs to provide rent relief to their subtenant, this depends on whether the subtenant meets the eligibility criteria under the Regulations.

 

11. Does a landlord have to offer rent relief?

Yes, the landlord must make an offer for rent relief within 14 days from the date the landlord receives a compliant request for rent relief from their tenant together with all of the required and relevant documents and evidence unless the parties agree on a different time frame in writing. The landlord’s rent relief offer must relate to up to 100% of the rent payable under the lease during the applicable rent relief period, and it must at a minimum be proportional to the tenant’s decline in turnover. There are matters that the rent relief request must take into account, and once the tenant receives the landlord’s offer for rent relief the parties must negotiate in good faith with a view to agreeing on the rent relief.

 

12. Can the landlord initiate the reassessment on the 1st of October?

No, the mandatory reassessment date is a set date, namely 31 October 2021. The Regulations specify what information the tenant must provide to the landlord in writing by that reassessment date of 31 October. The reassessment date applies if:

(a) a rent relief agreement has been made; and

(b) the date of the tenant’s request for rent relief was on or before 30 September 2021; and

(c) the tenant began trading before 1 April 2021.

A landlord would appear to be at liberty to remind their tenant of the reassessment date if they wish to do so.

 

13. Does turnover include grants from other state governments eg NSW?

No, it does not appear to do so.

 

14. If a tenant has started a new business but as at 28/7/21 had not yet started trading, are they eligible for ask for rent relief.

The Regulations require an ‘eligible tenant’ to have been ‘carrying on a business’ as at 28 July 2021. The ATO and the Corporations Act provide some guidance as to the meaning of those words. If the tenant has entered into a lease on or prior to 28 July 2021 it is arguable the tenant is carrying on a business, but one would need to consider what has occurred to properly consider the question.

 

15. If the tenant turnover is 40% but the landlord and the tenant agrees to reduce rent by 30$ would this agreement be invalid?

The regulations are in place to ensure landlords and tenants act in accordance with them for the purposes of requesting and offering the appropriate levels of rent relief. That said, it is still open to the parties to reach an agreement outside of the regulations if that is what they want to do.

 

16. With the lease extension, to clarify, is this only required where there is a deferral portion in the rent assistance package? So if the tenant only had a waiver (which some tenants have preferred, so they don’t have debt incurred), they aren’t entitled to the rent extension offer?

Correct, a landlord will only need to extend the lease where there is a deferral. It would not apply when there is just a waiver.

 

17. If a tenant is on a deferral payment plan from the last chapter of the CTRS and they have since vacated (of their own choosing), do they also get the benefit of the deferral payments being paused until January 2022? As they don’t actually have a lease anymore

A tenant who has since vacated the premises won’t be able to take advantage of the further deferral of 2020 rental payments.  This only applies to tenants who presently operate an eligible lease and who have made a request for rent relief under the current CTRS Regulations.

 

18. Can a tenant pay no rent until he establishes his downturn figures after 30 September 2021

No. before a rent relief agreement is reached, the tenant should, at the very least, continue to pay a portion of the rent due, equal to the rent due reduced by the same percentage as the tenant’s decline in turnover.

 

19. Should a landlord not be in a position financially to provide relief, would this be taken into consideration by VSBC should the tenant apply for mediation?

This was a factor that was taken into account in the first version of the Regulations, but has since been removed. It is not a factor the VSBC is required to take into account.

 

20. If a tenant doesn’t provide the re assessment information you mention that the waiver from the 1.11.2021 is no longer available to the tenants.

If the tenant doesn’t provide the reassessment information then the rent relief agreement will no longer apply to the extent it relates to any waiver of rent from the reassessment date unless one of the exclusions in regulation 29(6) applies.

 

21. Can an eligible tenant also request a rent review to look at a reduction in lease due to changes in the economic environment.

On its face, no.

 

22. What options do landlords have other than to issue proceedings in VCAT where a tenant has sought relief but refuses to reach agreement or negotiate in good faith under the CTRS for rent relief?

A landlord in that situation could have grounds to evict the tenant and/or have recourse to any security bond that the tenant has previously provided and/or pursue any guarantor for unpaid rent and losses. A landlord should obtain specific legal advice before taking such steps.

 

23. Retail tenant has not provided proof of decline in turnover and hasn’t made any application for rent relief.  The lease has expired and is currently month to month.  Can the landlord terminate the lease.

It is unclear if the tenant is an “eligible tenant” however no request for rent relief has been made by the tenant.  It is also unclear what is the decline in the tenant’s turnover is as no figures have been provided.

In addition, there is no deferred rent payable by the tenant, so the landlord is not obliged to offer an extension of the lease term.

As such, it is open for either party to terminate the monthly tenancy in accordance with the provisions of the lease.

 

24. Under rent relief what happens to the other outgoing such as Owners Corporation levies and Service & Maintenance obligations of building compliances? Is there a structure of would it fall back on to the lot owner?

Regulation 36 requires a landlord under an eligible lease to consider waiving the recovery of any outgoings or other expenses payable by a tenant and Regulation 37 provides that if any outgoings are reduced the landlord can only require a tenant to pay the reduced amount.  Other than these provisions the tenant would be required to pay outgoings.in full if the landlord does not waive them and/or they are not reduced

 

25. Our rent increases on 1 April each year, as per the first rent relief scheme, the rent did not increase on 1 April 2020. However, on…….2021, our rent increased twice (2 lots of 4%). So the question I have here is what is the rent under the new rent relief scheme we as the tenant should be paying.

Regulation 35 prohibits a landlord under an eligible lease of increasing rent during the “protection period” (between 28 July 2021 and 15 January 2022).  As the rent increase is effected on 1 April, i.e. not within the protection period, such rent increase would have been lawful and binding on the parties.

 

26. Have you seen many landlords accept 50/50 without any deferrals?

The Regulations provide that any offer for rent relief by a landlord must provide that  the rent relief offered must be at least proportionate to the tenant’s decline in turnover and no less than 50% of the rent relief must be waived.  It is open for the parties to agree otherwise.  There have been circumstances where the parties have agreed to a waiver of rent without deferrals.

 

27. Does Land Tax relief provided to landlord have to be passed on to “net tenants?

If any outgoing payable by a tenant is reduced, a landlord must not require a tenant to pay any amount that is greater than the reduced outgoing payable.  If a tenant has already paid the landlord the full amount of the reduced outgoing, the landlord must reimburse the excess amount to the tenant.

 

28. If the tenant doesn’t put in a claim for rent relief, but the landlord knows their tenant are suffering and would qualify. Is there any legal ramifications if the landlord does not assist?

A tenant may request rent relief from the landlord and provide supporting information.  A landlord is only required to make an offer for rent relief upon receipt of a valid request by the tenant .

However, it should be noted that Regulation 24(2) requires a landlord and tenant under an eligible lease to co-operate and act in good faith with regard to any discussions and actions associated with the Regulations.

 

29. Question relates to the ‘proof of reduction in income/occupancy. Does the evidence need to specifically relate to the leased premises.

Turnover relates to the tenant’s turnover (meaning the current GST turnover of the tenant) and does not have to be referrable to the tenant’s turnover derived from the leased premises.

 

 

Disclaimer: The information contained in this post is of a general nature and for information purposes only.  It is not intended to address individual circumstances and is therefore not intended to be relied upon as binding legal advice.

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