What Government landlords need to know about the 2022 Commercial Tenancy Relief Scheme

The Commercial Tenancy Relief Scheme Regulations 2022 were made on Tuesday 1 February 2022.  These Regulations reintroduce the Commercial Tenancy Relief Scheme with some differences.  The Regulations are taken to have come into operation from 16 January 2022 and continue until 15 March 2022.

We expect many government landlords will have questions about the scheme and what it means for them - we've set out responses to the main anticipated questions below.

What has changed?

This is a new scheme.  Landlords and tenants will need to assess afresh whether they meet the eligibility criteria for an 'eligible lease' under this Scheme.  There is no 'carry over' of those who were formerly eligible under the previous Commercial Tenancy Relief Scheme Regulations 2021 (2021 CTRS), or extension of previous rent relief entitlements.  If eligible, the tenant may make a rent relief application to the landlord for this period (16 January 2022 to 15 March 2022).

The scheme essentially works in the same way as the 2021 CTRS.  The key differences are:

• Eligible tenants must be small entities - ie: those with an annual turnover of less than $10 million for the 2020/21 financial year (in previous iterations, the threshold was higher at $50 million).
• The decline in turnover test now compares the January 2020 and January 2022 monthly turnover figures (unless an alternative method applies  -see 'decline in turnover' below).
• There is no longer a mandatory re-assessment.
• Any deferred rent payments under the 2020 or 2021 CTRS otherwise owing from the tenant to the landlord during this rent relief period are paused and restart after 15 March 2022.

Does the Scheme apply to my lease?

What is an eligible lease?

The Scheme will apply to your lease if it is an 'eligible lease'.  This occurs where the lease meets all of the following criteria:

1. the lease is a retail lease, commercial lease or licence, including a sub-lease or sub-licence, entered into for the sole or predominant purpose of carrying on a business at the occupied premises;
2. the lease or licence was in effect on 16 January 2022;
3. the tenant is an eligible tenant - see below; and
4. the lease is not an agricultural or farming lease.

Who is an eligible tenant?

The eligibility criteria largely replicate those applicable in the 2021 CTRS and the JobKeeper eligibility criteria.  A tenant is an eligible tenant if the tenant:

1. on 16 January 2022, carried on a business in Australia, was a non-profit body or a deductible gift recipient;
2. is a small entity - their annual GST turnover in the 2020/21 financial year was less than $10 million;
3. satisfies the decline in turnover test - see below; and
4. is not an excluded class of tenant.  This is a long list taken from the JobKeeper scheme. Highlights include:

• the tenant is connected with, or an affiliate of, one or more other entities - and that group of entities' turnover for the 2020/21 financial year was more than $10 million
• a publically listed corporation on an Australian or foreign stock exchange
• Commonwealth, State or local government body
• an entity for which a liquidator or trustee in bankruptcy has been appointed

Government tenants are not eligible for the new Commercial Tenancy Relief Scheme¹.

How is decline in turnover calculated?

As in the JobKeeper scheme, a tenant satisfies the decline in turnover test if the tenant's turnover for the turnover test period falls short of the tenant's comparison turnover by 30% or more.  For non-profit bodies, the threshold is 15%, except for certain major universities and all schools. 

Turnover means the current GST turnover as defined in the A New Tax System (Goods and Services Tax) Act 1999 (Cth), with some modifications as made in the JobKeeper Rules.  As in the 2021 CTRS, turnover is not just turnover derived at the premises, but also the entity's turnover from online sales.

The method used when applying the decline in turnover test depends on the day that the tenant started trading:

The Regulations include six alternative methods for calculating turnover where certain events occurred during the set comparison period.  The alternative method relating to a significant increase in turnover or irregular turnover has been removed.

What are my obligations and rights as a landlord?

Your obligations are the same as under the 2021 CTRS - including the prohibition on evicting the tenant, requiring you to offer rent relief in accordance with the minimum standards, and prohibiting rent increases.

As in the 2021 CTRS, the tenant is only protected by the prohibition on evictions if they comply with their rent relief agreement, or if one hasn't been made yet, if the tenant:

• makes a request for rent relief supplying the required evidence, and
• continues to pay a portion of the rent, reduced by the decline in turnover percentage set out in their request.

Evictions can be made for any other lawful reason.  These limits do not apply to the protection from eviction for changing trading hours.

The tenant may apply for rent relief at any time up to 15 March 2022. Once the rent relief is agreed, the rent relief will be backdated to 16 January 2022.  Once the tenant has provided a compliant application with the supporting statutory declaration and evidence to the landlord, a landlord must offer the tenant rent relief within 14 days.

If you and the tenant deferred rent under this lease (or an equivalent lease) under the 2020 or 2021 CTRS, those instalments payable during this rent relief period are paused and restart after 16 March 2022.

What is the dispute resolution process?

There are no changes to the dispute resolution process from the 2021 CTRS.  If there is a dispute, either party can refer the dispute to the Victorian Small Business Commission (VSBC). Before a party can commence proceedings in VCAT or a court (other than the Supreme Court) or seek a binding order, that party needs a certificate from VSBC that mediation has failed or is unlikely to resolve the dispute. 

Landlords and tenants have a general obligation to cooperate and act reasonably and in good faith in all associated discussions and actions.

What do I need to do now?

Most actions are initiated by tenants. However we recommend landlords prepare through taking following steps:

1. Determine whether any of your leases are likely to be 'eligible leases'.
2. Develop your internal processes and negotiation strategy now for meeting your landlord obligations, in readiness for receipt of rent relief requests.
3. Get familiar with your rights and obligations under the CTRS, particularly regarding the timeframes applicable in the rent relief process.
4. Know what action you can't take - such as evicting tenants for non-payment of rent or outgoings, or changing hours, or increasing the rent. Have you taken any prohibited action since 16 January 2022? We recommend seeking legal advice to see if it is valid or needs to be reversed.

We are happy to assist Victorian public entities with any negotiations or questions about CTRS.

The Victorian Small Business Commission also has a range of detailed Frequently Asked Questions.

Contact our team

The VGSO property team provides a full-service property law and Crown land practice to the Victorian public sector. We can assist with drafting and negotiating all leases and licences, and provide advice on application of the Retail Leases Act 2003 to your transaction.

Please get in touch with our team if you need assistance with property and development issues. 

Anthony Leggiero, Managing Principal Solicitor, Commercial, Property and Technology
Phone: 03 9947 1430 Mobile: 0457 417 813
anthony.leggiero@vgso.vic.gov.au

Margaret Marotti, Managing Principal Solicitor, Commercial, Property and Technology
Phone: 03 9947 1410 Mobile: 0408 311 246
margaret.marotti@vgso.vic.gov.au

Lauren Walley, Acting Principal Solicitor, Commercial, Property and Technology
Phone: 03 9947 1454 Mobile: 0408 326 771
lauren.walley@vgso.vic.gov.au

Alexandra Lioudvigova, Law Graduate
Phone: 03 8684 0991
alexandra.lioudvigova@vgso.vic.gov.au

The information is of a general nature only and does not convey or contain legal advice. If you would like to obtain legal advice in relation to any matter discussed on this page, please contact us.

Footnotes

¹Regulation 10(3)(b).
²Please review the specific criteria governing application of this method at regulation 21 to establish if it applies.