Commercial Tenancies Relief Scheme reintroduced

The Commercial Tenancy Relief Scheme (CTRS) will provide rent relief for eligible tenants, while separate support will be provided to eligible landlords.

At the time of writing, the Scheme has been announced but legislation is yet to be passed. The reintroduced Scheme is expected to be available to businesses with an annual turnover of less than $50 million and have suffered a decline in turnover of at least 30 per cent due to coronavirus. Landlords will be required to provide proportional rent relief in line with a business’s reduction in turnover. For example, a business with a turnover of 40 per cent of pre-pandemic levels can only be charged 40 per cent of its rent. Of the balance, at least half must be waived, with the remainder to be deferred.

The following information is provided in the context of the first round of the CTRS which closed on 28 March, 2021.

During the period between 28 March, 2021 and 28 July, 2021, commercial tenants were not entitled to rent relief. For that period, it is encouraged and best practice for the landlord’s agent to negotiate where possible in attempt to reach an amicable agreement between the tenant and landlord. Tenants who are having difficulty paying deferred rent can seek assistance from the Small Business Mentoring Service or their financial advisor.

It is vital that any negotiations and agreements reached are documented in writing between the parties accompanied by copies of accounting records and statements prepared by the tenant’s accountant including; business activity statements, bank statements and variation to the lease to support the tenants request for additional time to repay the deferred rent. It is important to note that any information, financial or otherwise which has been exchanged between the tenant and landlord must be observed and preserved in accordance with the provisions of Part 5 Regulation 19 Confidentiality of information (COVID-19 (Emergency Measures) (Commercial leases and Licences) Regulations 2020.

If the landlord and tenant fail to reach an agreement post 28 March, 2021, either party may apply for ‘no cost’ mediation through the Small Business Commission to attempt to resolve a dispute.

In circumstances where either the landlord or tenant fail or refuse to take part in mediation through the VSBC, either party may apply to VCAT or court for a determination to escalate a resolution. It is worthy to note that the VSBC is no longer required to provide a ‘certificate’ post 28 March, 2021.

A Covid-19 testing site on an otherwise empty Melbourne CBD street during the fifth lockdown.

Tenants who wish to end a tenancy during the term of a lease (when the CTRS is not in effect) because of a decline in takings or trade are still obligated to observe and perform the covenants of the lease and any variation to the lease.

Anecdotal evidence suggests some landlords instruct their managing agents to activate rent increases post the CTRS. This instruction should only be carried out once the period of rent relief offered to the tenant has lapsed. Any rent increase applicable can only be made in accordance with the terms of the lease.

The tenant must pay the deferred rent over the remaining period of the term of the lease (or any other period negotiated) or 24 months whichever is greater.