Victorian Government guidance on the Code, the Act and the Regulations (a.k.a. the CTRS)

The Victorian Government has published a guidance note that addresses some of the key areas of debate arising out of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Regulations) and the Act and Code that preceded it.

A copy of Victoria’s commercial tenancies relief scheme: Policy guidance on eligible participants and documentation requirements is available here: Guideline.

It is a mercifully short document, so practitioners should take the time to read it in full.

My preliminary comments on the Guideline are:

• The Code, the Act and the Regulations are referred to as the Commercial Tenancy Relief Scheme (CTRS).  Expect to see this terminology used frequently in the coming months.
• It is unclear what weight will be given to the Guideline.  It is not a Parliamentary document and post-dates the CTRS.  However, it is published by the Victorian Government and has clear statements of the Government’s intentions with respect to the CTRS and is published only a few weeks after the Regulations were provided.  Consequently, I think it is prudent to assume that it will be taken into account by the Courts or VCAT in cases applying the CTRS.

On the question of how much information the tenant must or should provide to its landlord under the CTRS, the Guideline says:

• The Victorian Government considers excessive requests for documentation to verify financial positions are not in keeping with the spirit of the Code.  Requests for information should be kept to a minimum to avoid imposing additional burden on tenants that might already be in financial distress.
• A commercial tenant may provide one of the following documents for the purpose of demonstrating the reduction in their financial circumstances and their capacity to meet payments for a nominated period:
  • information extracted from an accounting system, such as the current cashflow statement
  • information extracted from a Business Activity Statement (BAS)
  • information provided to a financial institution.
• The tenant can choose to provide further documentation if they feel this would assist their request for rent relief.
• It is not considered necessary for landlords to request the following documents from tenants to demonstrate a reduction in turnover:
  • financial information for periods other than the ‘relevant period’ being the period nominated by the tenant as the period for a reduction in turnover
  • future cash flow projections
  • balance sheets, profit and loss, year to date financials
  • bank balance details
  • requiring the financial information to be verified, examined, assured or audited by a third party such as an accountant
  • requiring the financial information be provided by an accountant.

• … it is not the intent of the Victorian Government that tenants be required to engage third parties to provide or verify information.

On the question of how much rent relief should be offered by a landlord, the Guideline says:

• There is an expectation that rent relief should be provided in proportion to the decline in the tenant’s turnover. When determining the amount of rent relief to be provided, all of the circumstances of the lease should be considered, including the landlord’s and tenant’s individual financial circumstances.

Importantly, the Guideline also introduces an expectation that landlords provide financial information to tenants in some circumstances, stating that:

• If a landlord offers rent relief that is not in proportion to the tenant’s decline in financial circumstances, the landlord should provide documentation of their financial position to the tenant to justify the amount of rent relief offered.

These last two statements suggest that the decline in the tenant’s turnover is the primary consideration for the landlord when considering the amount of rent relief offered to a tenant.

Other highlights of the Guideline are:

• … the Code does not draw a distinction between businesses that have had to cease operating or change their operations directly as a result of a directive from the Chief Health Officer, or those which might have done so on a voluntary basis due to impacts of the coronavirus (COVID-19) pandemic.
• … landlords should not base offers for rent relief on whether the business made the voluntary decision to reduce operating hours or close as a result of coronavirus (COVID-19) restrictions. Offers should be based on the financial information provided by the tenant.
• Non-employing sole traders are eligible businesses under the Commercial Tenancies Relief Scheme (CTRS).
• The CTRS applies to franchises at the franchisee level with a turnover up to $50 million and are participating in the JobKeeper payment scheme.
• Payments that a tenant receives from their participation in the JobKeeper scheme should not be included in turnover calculations to determine the proportion of rent.
• If a tenant’s financial circumstances deteriorate after an agreement has been made, Regulation 11 allows for the tenant to make a further request to a landlord for additional rent relief.  If a tenant’s business improves during the coronavirus (COVID-19) pandemic, it is not the Government’s intent that a new negotiation is required.