The 2021 CTRS | Update 16 - effects of Covid-19 on commercial tenancies

This post is written assuming readers are across our Update 14 and Update 15.

***update 10 August 2021 - the CTRS Bill received Royal Assent and so became law today. Regulations still to be seen***

***update 24 August - the CTRS Regulations have arrived, read our Update 17 here: CTRS 2021 Regulations now released | Update 17 - effects of Covid-19 on commercial tenancies (easternbridge.com.au)***

The Commercial Tenancy Relief Scheme Bill passed the upper house today (5 August 2021) having passed the lower house yesterday. This means the Bill will become law once it receives Royal Assent, likely on Tuesday 10 August. Regulations (which will set out the details of the 2021 CTRS) will follow shortly thereafter.

Throughout the day debate in the Legislative Council revealed some information about how the Regulations will look that are worth reporting on.

Additional landlord powers

Various references were made to orders obtainable by a landlord that were not included in the 2020 Regulations.

Jaala Pulford, Minister for Small Business, noted that:

• Landlords will have the opportunity to seek a binding order from the SBC where the tenant does not engage with the mediation procedure (under the 2020 Regulations a binding order could only be made by the SBC against a landlord on the application of a tenant);

• When asked whether there would be any penalty or disincentive for a tenant refusing to trade despite being capable of trading the Minister noted that if a tenant were found to not be operating within the spirit and intent of the legislation that would give rise to a right on the part of the landlord to seek a binding order that the tenant is non-compliant (at which point the tenant would lose protection against eviction). This might indicate the binding order powers will go further than contemplated by the 2020 Regulations to include broader ‘failure to act in good faith’ scenarios;

• The Minister noted that if no evidence as to downturn in turnover is provided then the tenant will not be eligible for relief and the landlord can seek an order in that regard from the SBC – although seemingly empowering landlords this might have the effect of placing red-tape in the way of evictions where a tenant is not eligible for relief.

Interesting titbits

• The Minister confirmed that Government support grants will be included in calculation of turnover for determining rent relief (by comparison, jobkeeper receipts were excluded when determining turnover under the 2020 Regulations);

• To qualify for relief a tenant will be required to demonstrate that they have complied in full with any rent relief agreement reached under the 2020 Regulations – tenants should ensure they keep up to date (or get up to date) with any deferred rental payments due under a prior agreement (although existing deferral arrangements will go on hold from 28 July);

• An additional $3,000,000 of funding will be made available to the Small Business Commissioner to gear up their staffing levels and mediator resources;

• The Minister stated that “online turnover is still turnover” and that “absolutely [online turnover] should be included” in the definition of turnover for calculations of eligibility and proportional relief. The 2020 Regulations limited turnover to “turnover that is associated with the premises (and no other premises)”. This would seem to be facing amendment in the 2021 CTRS;

• The Minister noted that where a private arrangement exists between a landlord and a tenant (for instance a lease entered into over the last 18 months that includes a clause providing rental relief in response to COVID shutdowns) the tenant will receive the more favourable of the private arrangement and the Regulations.

Eligibility and timing

Prior press releases have confirmed that eligibility will be determined from 28 July 2020 – The Minister noted that eligibility determined at that point in time will be the “gateway” to relief through to January 2022.

The reference (used a number of times throughout the day) to an eligibility “gateway” indicates that a tenant will not be able to fall out of eligibility if it subsequently experiences improved trade (although the level of relief may change throughout the course of the regulations). It would seem equally that a tenant not eligible initially will not be able to subsequently become eligible if their position worsens. This seems onerous, particularly where we have gone into a new lockdown today but the test period for eligibility relates to April – June 2021.

Whenever the ‘gateway’ eligibility was mentioned throughout the day it was in the context of confirming that a tenant would not fall out of eligibility – it would seem consistent with the intent of the scheme to allow a tenant to qualify subsequently even where not eligible at the initial ‘gateway’ point, but that would seem to be inconsistent with what was indicated in Parliament.

Remaining questions

Press release on 3 August confirmed that there will be re-assessment of turnover throughout the course of the Regulations (to reduce or increase the level of relief having regard to updated trading conditions). The Minister confirmed that no date has been set for that re-assessment to take place.

Businesses that were not in operation in 2019 won’t have any data to compare their April – June 2021 turnover against. The Minister confirmed that the Government still doesn’t have an answer as to how to measure decline in turnover for those businesses (Liberal Member David Davis noted that the Property Council had pushed for new businesses to test revenue against their average revenue since inception – that would seem an overly onerous threshold for new businesses).

The Minister noted that Regulations should be arriving “within a week or two” with provision by end of August being a worst-case scenario. There will not be public consultation on the Regulations but the Minister noted they are “working through drafting with organisations representing commercial tenants and landlords”.

As always we’ll keep you up to date when we know more.

Paul Nunan

Director

Accredited Specialist | Commercial Leasing