Reassessments due | Update 18 - effects of Covid-19 on commercial tenancies

Tenants who have reached a rent relief agreement with their landlord under the Commercial Tenancy Relief Scheme Regulations 2021 (“the Regulations”) must get reassessment data to their landlord by 30 October 2021.

For a more thorough article on the Regulations see our Update 17 here CTRS 2021 Regulations now released | Update 17 - effects of Covid-19 on commercial tenancies (easternbridge.com.au), this article assumes a basic understanding of the Regulations.

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Reassessment

Regulation 29 deals with reassessment of rent relief agreements.

The reassessment regulation will apply where:

• a rent relief agreement has been made; and

• the tenant made a request for relief on or before 30 September 2021 (note the tenant did not need to provide the supporting information on or before 30 September); and

• the tenant began trading prior to 1 April 2021.

Where the reassessment regulation applies the tenant must provide to the landlord, in writing and by 31 October 2021 the following information:

• turnover for the reassessment turnover test period (the quarter ending 30 September 2021);

• comparison turnover (if the tenant commenced trade pre-July 2019 then the turnover for the quarter ending 30 September 2019; if the tenant commenced trading 1 July 2019 – 31 March 2021 then the turnover for the quarter ending 30 June 2021); and

• the change in turnover, calculated as the different between those two figures expressed as a percentage of the comparison turnover.

A tenant must also provide a statutory declaration (made by the tenant or an authorised officer of the tenant) stating that the information provides is true and correct (note that the evidence requirements that went with an initial rent relief request do not apply to the provision of reassessment data however it would seem advisable to provide corresponding evidence).

Tenants should note that alternate comparison turnover periods continue to be available in respect of reassessment if they meet one of the relevant requirements – any tenant intending to rely on an alternative comparison turnover should get advice as to how those requirements will apply to the reassessment period.

Timing is critical, the requirement is that information be provided “by” 31 October – this means the information should be provided ‘on or before’ 30 October (i.e. to avoid any arguments tenants should not wait until Sunday to submit the data and their declaration, even though there is a very strong argument that "by" 31 October means "on or before" 31 October).

Where a tenant has made a valid request prior to 30 September but a rent relief agreement has not been reached (because, for instance, the landlord has failed to comply with its offer obligations and/or the parties have progressed the matter to the SBC but the matter has not yet reached or been successful at mediation) then Regulation 29 will not apply.

This would seem to provide a strong incentive to landlords to delay agreement until after 31 October.

Impact of reassessment

Where a tenant’s reassessment change in turnover differs from the tenant’s change in turnover in their initial rent relief request then from 31 October rent relief agreements will be automatically varied such that any part of the agreement based on the tenant’s decline in turnover will be adjusted to reflect the new (reassessment) change in turnover.

Where a landlord and tenant have agreed on relief other than on a proportional basis (for instance where they have agreed that rather than waiving 20% and deferring 20% there will be a straight waiver of 30%) there might be an argument that the relief agreement was not “based on the tenant’s decline in turnover” and so not subject to alteration following provision of reassessment data.

It remains to be seen how such an argument would play out – good drafting will have seen this dealt with at the time a rent relief agreement was reached.

Consequences of non-compliance

If a tenant fails to provide reassessment data within time then to the extent the rent relief agreement contemplated any waiver of rent, that waiver component will no longer apply from 31 October (deferral of rent components will be unaffected).

This is a significant consequence and tenants should be careful to ensure they do not miss the relevant date or fail to provide all required information and evidence.

Exclusions

There are some limited exclusions to the requirement to provide reassessment data, they are:

• if the tenant is unable to trade as a result of sickness or injury;

• if the tenant is unable to trade due to natural disaster; or

• if the parties agree that notwithstanding non-provision of reassessment information the rent relief agreement will continue to apply.

There might be an argument that a rent relief agreement that states that the relief will apply through to 15 January 2022 but that makes no reference to reassessment is itself agreement that the agreement will apply notwithstanding failure to provide reassessment data – tenants should absolutely not assume they will be able to rely on any such argument, it would be a long shot at best.

Other notes on the Regulations

I had promised updates on the Regulations. The world got a bit crazy, but to be honest our Update 17 covered of on the vast majority of interesting elements that we have seen arise. By way of very brief comment, the following are some notes in relation to elements and issues that have arisen regularly:

State government grants (in connection with COVID) were routinely missed in relief requests that came across our desk, that makes the request invalid. Landlords who have concerns might seek to make enquiries and ensure they were not given incorrect data.

It was incumbent on tenants to provide evidence of the decline in turnover – if an accountant’s letter excludes all liability, states that no third party (including the landlord) can rely on it and includes various other waivers there will be a question as to whether it is “evidence” of anything at all. If a tenant provided only BAS statements it is important to note that state government grants will not be included – so a BAS statement will only be evidence if no such grants were paid.

The regulations fail to require a tenant to provide any evidence that it is entitled to use an alternative test. We look forward to seeing how VCAT or the Courts will treat those applications and to what extent they will then require such evidence.

Where a tenant makes an application and provides evidence after 30 September it will only be entitled to relief from the date of the application, but the protection period still applies from 28 July (so an eligible tenant (who has not otherwise triggered protections or entered into a rent relief agreement) who has received a default notice for arrears dating back to 28 July could serve a request now and receive protection back to 28 July (until a rent relief agreement is reached of course)).

The 14-day period to trigger deemed acceptance of an offer will only apply where the offer has met the minimum requirements of the legislation. Where a landlord makes an offer that does not strictly reach the minimum requirements (or sends a response to a request not framed as an offer) the clock will not start running against the tenant towards a deemed acceptance. This would be the case even where the landlord might argue its offer was more favourable (the most common example being where a tenant is entitled to, say, 15% waiver and 15% deferral, an offer of 25% waiver only will not meet the minimum requirements).

There are no recent VCAT decisions to speak of that are of any particular interest.

Please don't hesitate to contact our office with any queries!

Paul Nunan

Director

Accredited Specialist | Commercial Leasing