A recent Covid rent relief request case at VCAT bodes ill for Victoria’s pandemic-stricken commercial tenants.
The tenant in Tzilantonis v S &C Thomas Pty Ltd  VCAT 486 was a solicitor who used part of the leased premises for his legal practice and the remainder as an online variety store known as Clearance Bazaar. After Covid thumped the legal practice’s turnover, the soli made three separate written requests spanning 8 months to his landlord for rental relief under the COVID 19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (“the Regulations”). The landlord was unmoved. It contended that none of the requests complied with the Regulations and accordingly the tenant was not entitled to any rent relief.
So off to VCAT the parties went.
Last month VCAT Deputy President Riegler delivered his decision. In summary:
- It was common ground between the parties at hearing that any entitlement to rental relief was conditional upon the tenant having made a compliant rent relief request under the Regulations.
- Of the tenant’s three rent relief requests for the year from 1 April 2020, VCAT found only the final request was compliant and hence the tenant was entitled only to rent relief for the three months covered by that particular request.
- The formal final order states that “The Applicant is entitled to rental relief representing 62.2% of the rent that would otherwise have been payable over the period 31 December 2020 until 28 March 2021”. But the reasons are obscure as to both how that unquantified amount was arrived at, and how much of the relief was to be by way of rent waiver and how much was to be rent deferral.
The Tzilantonis decision answers some questions about the practical operation of the Commercial Tenancy Relief Scheme (CTRS) but invites others.
Some takeaway answers include the following:
- It seems that a tenant’s valid CTRS rent relief request can comprise separate documents on separate dates provided they are all provided to the landlord within a reasonably short period.
- Supplying VCAT and the landlord at final hearing with information or documentation which should have been provided with an actual rent relief request will be too late to salvage the validity of a non-compliant rent relief request.
- Strict, although not entirely slavish, compliance with the Regulations is required for a rent relief request to be valid. For example, an abbreviated version of the pointless tautology required at reg. 10(2) of the Regulations that “the tenant’s lease is an eligible lease … and that the lease is not excluded from the operation of these regulations…” won’t invalidate the request.
- Providing a landlord with a “print activity statement” (in essence an electronic version of a BAS statement) is capable of being sufficient evidence of a tenant’s participation in the jobkeeper program for the purposes of reg. 10(2)(b)(ii).
- VCAT-ordered CTRS rent relief applies to rent only – there is no flow-on right to corresponding relief for outgoings (eg utility payments) payable under the lease.
What of the remaining questions about the practical operation of the CTRS?
One that occurs to me relates to the common perception that any rent relief granted under the CTRS must be directly proportionate to the tenant’s fall in turnover. And what of the widespread understanding that whatever rent relief is given must be in the form of 50/50 forgiveness of rent and deferral of rent?
Both are myths that arose from the National Cabinet’s views on these issues last year (see my blog touching upon its Code of Conduct here) rather than from any actual requirements in the Regulations.
The Regulations were amended several times over their short life (remember that the Regulations expired on 28 March 2021) but they never included any requirement that the rent relief had to be directly proportionate to the decline in the tenant’s turnover. The closest reference to proportionality was found in reg. 10(4)(ba) which made rent relief proportionate to the tenant’s decline in turnover the minimum rent relief to which the tenant was entitled. And the tenant’s maximum rent relief entitlement? Reg. 10(4)(a) referred to “… up to 100% of the rent payable…” [My emphasis.]
The decision in in Tzilantonis sets out that the tenant’s year-on-year decline in turnover for the December quarter in 2020 was 62.2% and then — without any reference to this being the tenant’s minimum entitlement under reg.10(4)(ba) — transplants that percentage figure into the final rent relief order. Why the coincidence in percentage figures? Did the tenant even ask for more than 62.2%? The VCAT decision does not say.
Similarly, readers are left to wonder whether the 62.2% rent relief ordered for (most of) the March 2021 quarter was intended by VCAT to take the form of waiver of 31.1% of the usual rent plus deferral of payment of a further 31.1% (and if so, deferral over what period?) or if some other cocktail of rent relief was contemplated.
Reg. 10(4)(b) required a landlord offering a qualifying tenant rent relief to offer “not less than 50% of the rent relief … in the form of a waiver of rent, unless a landlord and a tenant otherwise agree in writing.” [My emphasis]. Note that — again contrary to common understanding — the requirement that 50% of the rent relief be by way of waiver (unless the tenant otherwise agrees) was the tenant’s minimum entitlement under the Regulations and was not a fixed and inflexible outcome.
So, of the 61.2% rent relief the tenant secured did VCAT decide that the tenant’s minimum waiver entitlement of 50% was appropriate here? Or was it to be a 100% rental waiver? Or was it to be waiver of something between those percentages with deferral (for however long) of payment of the balance of the rent relief? Again, readers are left to wonder.
A third big CTRS question didn’t arise in this case because of the Tribunal’s findings as to the invalidity of the tenant’s first two rent relief requests. But if, hypothetically, the tenant’s earliest rent relief request had complied with the Regulations, would the tenant’s subsequent rent relief requests then have been redundant as a consequence? (If so, a botched later request presumably would not have invalidated its valid predecessor.) Or should tenants seeking rent relief under the CTRS have submitted a fresh rent relief request each time a fresh version of the Regulations commenced (and, remember, with retrospective effect each time)? (If so, commercial tenants who failed to submit at least three valid rent relief requests will have disqualified themselves from at least some of the protections otherwise available to them under the CTRS.)
- When even solicitor tenants have trouble navigating the complexities of their own Covid commercial tenancy rent relief requests under the COVID 19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020, Victoria’s restauranteurs, hairdressers, gym operators and other small and medium commercial tenants have ample reason to be very nervous about the validity of their own rent relief requests.
- Pending some more published decisions from VCAT in this area, it will be perilous work for lawyers advising tenants and landlords as to their surviving rights and obligations under the CTRS.
VCAT -again fails to be friend to public at large as was intended.
Also, no thanks to those who drafted legislation designed to assist businesses from quasi or actual insolvency.