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Victorian rent relief extension prompts further evidence requirements

With the Victorian government further extending its Commercial Tenancy Relief Scheme to 28 March, an industry lawyer has highlighted some of the critical considerations and documentation traps for SMSFs with tenants requesting this relief.

SMSF Miranda Brownlee 30 December 2020
— 2 minute read

The Victorian government announced this month that it is extending the existing Commercial Tenancy Relief Scheme until 28 March 2021, in line with the Residential Tenancies (COVID-19 Emergency Measures) Regulations 2020.

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Jaala Pulford said this means freezes on rent increases and bans on evictions for eligible small businesses that have requested rent relief will continue until that date.

Commercial landlords will be required to provide rent relief in proportion to the tenant’s fall in turnover. Support for landlords has also been extended, she said.

DBA Lawyers director Daniel Butler said it’s likely that this third tranche of relief will be based on the same legislation and regulations as the second round of relief which spanned from 28 September to 31 December 2020.

Mr Butler noted that the Victorian regulations were adjusted quite substantially between the first and second rounds of relief.

“The second round of changes were a lot tighter and more favourable for the tenant. In the first round, there was one factor [where] you had to consider the landlord’s ability to actually provide the relief, but that was taken out in the second round,” Mr Butler said.

Where tenants plan to request further rent relief under this new extension, Mr Butler said they will need to supply the SMSF with further information, including evidence that they are still a recipient of JobKeeper.

Mr Butler said if the tenant is no longer in receipt of JobKeeper, it’s likely that they would not qualify for the relief; however, the details of the regulations have not yet been released.

“Under the Victorian provisions, when the second extension was announced, the tenant had to actively ask for the relief in proper written form and supply the right documents about its turnover and its qualifying potential under the work JobKeeper scheme in order for the landlord to then reply,” he explained.

“The further rent relief was conditional upon that request and the further rent relief only commenced from the second request. I would dare say that a lot of people haven’t gotten that documentation in place.”

Mr Butler said there needs to be evidence of a process of negotiation.

“We should see the tenant supply the requisite information, so the tenant must make a further request and provide sufficient information that it does qualify as an SME entity, that it is a JobKeeper participant, including a receipt number issued by the ATO and a copy of the tenant’s most recent JobKeeper notice from the ATO,” he stated.

Mr Butler said, ideally, SMSFs should be varying the terms of the lease by deed.

“That way you don’t have to prove offer, acceptable, consideration and intent to create legal relations, so you don’t have to go through all that [trouble] if you go to court to enforce your lease,” he said.

“People who have done it with an exchange of letters and resolutions, well, that has no legal effect. If there’s no legal effect and you have a non-geared unit trust, you could have tainted your non-geared unit trust. There’s no let-out under the recent legislative instrument because that’s only for your deferred rent, it doesn’t cover you for dodgy documents.”

Given the complexity in this area, Mr Butler said advisers need to be careful and should seek assurance from their supplier that the documents supplied are legally effective, fit for purpose and covered by the supplier’s professional indemnity insurance.

He reminded SMSF professionals that the SISA and SISR require lease arrangements to be enforceable by legal proceedings for the business real property in-house asset exception to apply.

Victorian rent relief extension prompts further evidence requirements
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