Tag Archives: CTRS

Commercial Tenancy Relief Scheme 2.0 – a new variant for leasing lawyers

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Covid has evolved. So has Victoria’s commercial rent relief scheme to deal with the pandemic’s consequences for commercial landlords and tenants. We now have the details of the latest version.

The new CTRS (perhaps we should christen it the CTRS’s Delta variant?) effectively became law yesterday. Here is a very brief introduction:

  1. The Commercial Tenancy Relief Scheme Act 2021 ostensibly creates the scheme but its real substance is contained in the Commercial Tenancy Relief Scheme Regulations 2021 proclaimed yesterday.
  2. Its broad aim is to entitle distressed retail and commercial tenants who have suffered a decline in turnover of 30 per cent or more since 1 April 2021 to obtain at least proportionate rent relief from their landlords.
  3. Eligibility for the CTRS is no longer tied to the Jobkeeper program (which has expired) but rather to a financial comparison of three consecutive months of trade to an earlier corresponding period.
  4. Some tenants are disqualified from the outset. Publicly listed corporations, major banks and beekeepers (yes, really!) are among the unwelcome (see regs 7 and 8).
  5. The scheme is complex and littered with exceptions, carve-outs, qualifications, and deadlines. No brief summary (including this one) can be relied upon as entirely accurate.
  6. Eligibility is not automatic. Among other things, eligibility requires a written rent relief request from a tenant to a landlord (reg. 27(1)) which sets out certain details (reg. 27(2)) and is supported by certain documentary evidence within 14 days (reg. 27(3)). A tenant who stuffs up these formalities three times will not be allowed a fourth bite of the cherry (reg. 26(6)).
  7. A landlord receiving a compliant rent relief request must within 14 days offer the tenant at least rent relief proportionate to the tenant’s decline in turnover. At least half of that relief must be by way of waiver of rent (reg. 27(8)) with the balance by deferral.
  8. A tenant receiving such an offer will be deemed to have accepted it 15 days later unless they have otherwise agreed or have already referred the matter to the Small Business Commissioner (reg. 27(11)).
  9. The period for which rent relief must be granted starts on the day the rent relief request is made unless that request is made before 30 September 2021 in which case the rent relief period commences on 28 July 2021 (note the retrospectivity) (reg. 28). (This will make 30 September 2021 an important deadline for some distressed tenants.)
  10. Where a landlord and tenant cannot agree on rent relief the Small Business Commission can impose a binding order on the parties (reg. 48) without a hearing (reg. 46) which can then be further litigated in VCAT (reg. 59).
  11. Eligible lease disputes can be litigated in VCAT or the Supreme, County or Magistrates’ courts but all require a gateway certificate from the Small Business Commission (regs 64 and 65).
  12. The regulations currently contemplate a ‘rent relief period’ from only 28 July 2021 to 15 January 2022 (see definitions at reg. 4) but remember that the end date of the original CTRS scheme was extended several times so this end date might eventually prove to be elastic too.
  13. During the ‘rent relief period’ it will be impossible for most landlords to increase their rents under eligible leases for any reason (reg. 35). Particularly for long term leases without ‘review to market’ rent review clauses, this ban has potential long term implications to the capitalization rates and hence the capital value of some rental properties.
  14. Unlike the earlier CTRS schemes, some tenants will be required to provide further financial information to their landlord even after a rent relief agreement has been entered into. Their rent relief entitlement might then increase or decrease automatically depending on that information (reg. 29).

Does this all sound simple, straight forward and convenient? If so, I haven’t explained it sufficiently and you should probably do some further reading.

Some useful resources for that purpose:

How bazaar – soli’s CTRS rent relief requests mostly fail at VCAT

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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 [2021] 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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).
  5. 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.)

Conclusion

Two thoughts.

  • 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.

As CTRS sunsets, VCAT shades VSBC’s rent relief request guidance

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Photo by Abdullah Ghatasheh on Pexels.com

The pandemic-inspired Commercial Tenancy Relief Scheme (CTRS) ends this Sunday, 28 March 2021 but two recent cases suggest that it will echo on in VCAT litigation for a good while yet.

I last blogged about the CTRS back in October (see here). For a beginners’ guide to the CTRS generally, see my original blog on the subject here. In a nutshell, it is a regime to give temporary assistance to pandemic-hit commercial and retail property tenants.

The scheme came into operation in May 2020 with retrospective effect to 29 March 2020. It was originally to end on 29 September 2020 but was extended twice. By its first lot of amendments (the September amendments) it was extended until 31 December 2020 and by a second set (the December amendments) it was extended further to 28 March 2021. (See the expiry date provision at reg. 25 and also the definition of “relevant period” at reg. 3 of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020.)

But with no further extensions the CTRS party is about to end. Both the CTRS and the Commonwealth’s JobKeeper payment program (which was always essential to CTRS eligibility) are to end on 28 March 2021.

As discussed in my October blog, the September amendments contained some tweaks to the CTRS beyond simply prolonging it. Those other changes caused the Victorian Small Business Commission (VSBC) to suggest publicly that fresh rent relief requests to landlords were likely to be necessary for any pandemic-distressed tenants wanting rent relief for any time after the CTRS’s original 29 September 2020 expiry date. In short, the VSBC’s implication was that even an entirely compliant rent relief request made before 29 September 2020 risked being legally useless in respect of any rent due after that date and hence a fresh formal rent relief request was necessary for pandemic-affected tenants.

Really? As Talking Heads asked in Psycho Killer “Say something once, why say it again?”

As statutory interpretation, the VSBC view was arguable but as policy it did sound improbable, especially when the CTRS was directed at assisting small businesses through a societal catastrophe.

Fast forward six months and this ‘one-rent-relief-request-or-two?’ issue from the September amendments has now cropped up in two separate VCAT cases in the last fortnight.

Both cases make encouraging news for tenants.

In Yarraville Business Pty Ltd v Persico [2021] VCAT 213 Member Edquist was unmoved by the VSBC’s public pronouncements. In Yarraville, the tenant had made one (problematic) rent relief request before the September amendments and none afterwards. The landlord pointed to this as fatal to the tenant’s reliance on the CTRS in respect of short-payment of rent due after 29 September 2020. The Tribunal disagreed (at least on an interlocutory basis). It found that the tenant’s single pre-September request was sufficient for both pre- and post-29 September CTRS purposes and that the VSBC’s views were of little consequence:

….

74.    I begin with the observation that I am not assisted by the reference to the website of the Small Business Commissioner. The Victorian Small Business Commission is not a superior court, and its opinions do not bind the Tribunal. It was not contended that the website should be regarded as the opinion of an expert witness. The chain of reasoning underpinning the Small Business Commissioner’s expression of opinion does not appear to be set out on the website, and so I am not in a position to consider it.

….

88.    …. For these reasons, I find that [the Tenant’s] argument is sustained. [The Tenant] did not have to make a fresh application for review after 29 September 2020 in order to continue to enjoy protection from eviction ….

Just four days later, in Global Fashion Service Pty Ltd v ESR Investment Nominees 3 (Australia) Pty Ltd [2021] VCAT 224, VCAT’s Deputy President Riegler reached a similar conclusion in favour of another tenant who had also sought rent relief before the September amendments but had failed to make a fresh rent relief request afterwards. DP Riegler’s reasons do not refer to the VSBC nor to the Interpretation of Legislation Act (several parts of which are discussed in Yarraville) but the bottom line was the same.

In each case, a tenant who had failed to seek rent relief after the September amendments came into force succeeded in obtaining an injunction preventing a landlord from terminating a lease to which the CTRS applied.

The interlocutory nature of both the Yarraville and Global Fashion decisions is significant as no final decision of legal rights has yet been made in either case and hence they have – for the moment at least – dubious precedent value.

Nevertheless, pending the final determination of the two cases they are still likely to assist tenants in CTRS rent relief negotiations by upsetting a previously widespread perception that valid rent relief requests made before 29 September 2020 were somehow irrelevant to leasing relationships after that date.

The cases are also a useful reminder not to rely on everything you read on the VSBC website.