SMSFs flagged on new Victoria COVID-19 rent relief requirements

It is currently understood that the act will align with regulations, which have not yet been released, and that these regulations will largely replicate the regulations that were in place in March 2020 to March 2021 (the first COVID rent relief scheme).

In a recent Smarter SMSF update, principal of Hill Legal Chris Hill said that with many SMSFs holding commercial or residential property either directly or through a trust, the operation of the act applies to properties held in both of these entities.

He noted it is important for SMSFs as landlords with commercial premises (business real property or BRP) to first determine whether the operation of the act applies to them and, if it does, what implications and actions arise. 

“The determination of an eligible tenant will be a one-time test. Once the business can prove they are eligible, they will remain eligible throughout the scheme period, with the proportion of rent relief adjusted in line with their turnover,” Mr Hill said.

“Much the same as the first COVID rent relief scheme, the act only applies to an eligible lease, which is defined at Section 5 of the act as a retail lease or non-retail commercial lease or licence that is prescribed. This is slightly more flexible than the previous definition for an eligible lease.

“An eligible tenant must also have an annual turnover of less than $50 million and experience a decline in turnover of at least 30 per cent.

“There is no requirement that the tenant must qualify for the JobKeeper scheme to have an eligible lease.”

Mr Hill noted eligible tenants will have rent relief calculated by comparing turnover from the final quarter of 2020–21 financial year with turnover from the final quarter of 2018–19 financial year. If the drop in turnover is greater than 30 per cent, the eligible tenant will be entitled to rent relief. The initial rent relief will be determined by the amount of drop in turnover.

“The regulations, once imposed, will be able to be backdated to a date not earlier than 28 July 2021,” he said.

“The percentage drop in turnover will assist in determining the amount of initial rent relief available to the tenant. Much like the first COVID rent relief scheme, the tenant will be entitled to a 50 per cent waiver and 50 per cent deferral of rent payable in accordance with the percentage drop in turnover. Any deferral of rent will be added to any outstanding deferral of rent relief from the first COVID rent relief scheme.”

Meanwhile, if the tenant is already paying off deferred rent or has an agreement with the landlord as a result of the first COVID rent relief scheme, Mr Hill said the existing deferred rent will be frozen until 15 January 2022, at which time the outstanding amount will be added to the deferred rent accrued under this new COVID rent relief scheme.

“For SMSF trustees acting as a commercial landlord and providing assistance to eligible tenants through the act, the government will provide a land tax relief of up to 25 per cent,” he explained.

“For a ‘small landlord’ that can demonstrate acute hardship, eligibility may apply for payments from the Victorian government’s COVID hardship fund.”

It is also important to note that an eligible tenant under the COVID rent relief scheme cannot be evicted without the landlord obtaining a direction from the Victorian Small Business Commission (VSBC), according to Mr Hill. The VSBC will be able to assist tenants and landlords in their negotiations around rent relief if an agreement cannot be reached between the parties.

The VSBC will have the power to prohibit termination of a lease, change any period under a lease and change or limit rights of a landlord under a lease.

It can also modify the operation of a lease and impose new obligations on landlords or tenants under a lease.

While awaiting the regulations, Mr Hill said it is important that landlords and tenants best prepare themselves as soon as possible.

“Commercial tenants and landlords should enter negotiations as soon as possible, including where the tenant is a related party leasing as BRP,” he explained.

“Furthermore, collect copies of your lease, as well as any renewal, transfer or other variation documents; and for landlords, ask the tenant to prepare documentation to evidence their decline in turnover in accordance with the act.”