In brief

On 24 August 2021, the Commercial Tenancy Relief Scheme Regulations 2021 ("Regulations") were released to effect the new Commercial Tenancy Relief Scheme (CTRS). Under the CTRS, rent relief will be provided to businesses operating as at 28 July 2021 with an annual turnover of less than $50m which have experienced a loss in turnover exceeding 30% due to COVID-19 ("Eligible Tenant"). It is a mandatory requirement for landlords to provide rent relief proportional to the decline in turnover of the Eligible Tenant. The revised CTRS will apply from 28 July 2021 to 15 January 2022 ("Protection Period").

In depth

Key features of the new CTRS

  • Mandatory rent relief for Eligible Tenants: Rent relief will be mandatory for eligible leases, including where the tenant is a business with an annual turnover of less than AUD 50 million (at the group level) which has experienced a decline in turnover of at least 30% due to COVID-19. Landlords must provide rent relief in the form of a minimum of 50% rent waiver and rent deferrals proportional to the decline in turnover. Rent deferrals are not payable until after 15 January 2022. Certain types of tenants, such as listed corporations and their subsidiaries, are excluded from obtaining rent relief under the CTRS.
  • Rent relief request: An Eligible Tenant must make their rent relief request in writing, demonstrating their eligibility for relief and a decline in turnover, including working calculations to demonstrate the decline in turnover. Within 14 days of the request, the Eligible Tenant must produce evidence of the reduction in turnover supported by a statutory declaration. To be eligible for backdated rent relief applying from 28 July 2021, the Eligible Tenant must make their request by 30 September 2021.
  • Relief based on turnover comparison: Rent relief will be calculated by comparing turnover for the 'Turnover Test Period' with turnover from the 'Relevant Comparison Period'. The Regulations have offered various methods allowing Eligible Tenants to choose the relevant periods for comparison.
  • Rent relief offer: Within 14 days of receipt of an Eligible Tenant's request and the necessary evidence, the landlord must make a rent relief offer. The duration of the rent relief period will vary as follows:
    • if a tenant makes a compliant request and provides all evidence on or before 30 September 2021, the rent relief period will be 28 July 2021 to 15 January 2022; or
    • if a tenant makes a compliant request and provides all evidence on a date after 30 September 2021, the rent relief period will be from the date of the Eligible Tenant's request until 15 January 2022.
  • Mandatory reassessment of rent relief agreement: Where a rent relief agreement is reached, and the date of the Eligible Tenant's request was before 30 September 2021 (and the Eligible Tenant began trading before 1 April 2021), the parties are required to undergo a rent relief reassessment process. By 31 October 2021, the Eligible Tenant must provide updated turnover data to the landlord, for a reassessment of the business' decline in turnover. The available rent relief will then be adjusted in line with the turnover during that period. If the Eligible Tenant fails to provide the updated financial information by 31 October 2021, the rent relief waiver will cease from 31 October 2021.
  • Existing deferred rent arrangements are frozen: Where an eligible tenant entered into deferred rent arrangements under the 2020 CTRS, the existing deferred rent repayment requirements will be frozen until the end of the 2021 CTRS.
  • Prohibition on rent increases: A landlord of an eligible lease must not increase the rent payable under the lease at any time in the Protection Period. Any review of the rent payable under the lease, whether that be a fixed increase or market rent review, that would have otherwise occurred in the Protection Period is voided and cannot be claimed by the landlord at any time.
  • Protection against re-entry of premises: Landlords must not take action to recover unpaid rent or outgoings during the Protection Period (including by re-entry or drawing down on a bank guarantee), and criminal penalties can be levied against a landlord if they unlawfully attempt enforcement.

Our view

The Regulations for the new CTRS offer significant support for Eligible Tenants while achieving some balance and fairness for landlords with a tightened eligibility criteria. However, there is great complexity within these Regulations, especially in relation to determining the reduction in turnover and the rent relief request process. The CTRS contains detailed intricate requirements, time imposed deadlines and interconnected obligations with which an Eligible Tenant must comply to negotiate and obtain a right to rent relief.