Rent relief for restaurants - what you need to know

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Many of our clients are trendy Melbourne restaurants operating from prime Melbourne premises. Given that rent is one of the highest fixed expenses that restaurants carry, the new commercial rent relief package announced by the Victorian Government earlier this month comes as a welcome reprieve to Melbourne hospitality venues. 


Key points

  • The commercial rent relief package requires landlords to offer a partial rent waiver and provides some protection from eviction and rent increases.

  • For eligible businesses that make a rent relief request by 30 September 2021, rent relief applies retrospectively from 28 July 2021. 

  • To be eligible for rent relief, Victorian businesses must: 

    • have an annual turnover of less than $50 million; and

    • show a decline in turnover of at least 30%. 


Overview of the rent relief package 

As announced by Premier Dan Andrews earlier this month, rent relief will be available to commercial tenants in Victoria from 28 July 2021, supporting Victorian businesses through lockdown number 6.  This scheme will operate similarly to the previous commercial rent relief which finished in March 2021. The main difference is that the new scheme does not rely on JobKeeper as a threshold for eligibility. Victorian businesses must instead demonstrate a decline in turnover of at least 30% between the turnover test period and the comparison period. 


The decline in turnover test 

Eligible Victorian businesses will be entitled to rent relief if they can show a decline in turnover for any consecutive three month period between 1 April 2021 - 30 Sep 2021 (commencing on the 1st day of the relevant month) compared to the comparison period. The comparison period is the three month period in 2019 that corresponds to the turnover test period nominated by the tenant. Financial assistance provided by the Commonwealth Government to mitigate the impact of COVID-19 does not count as turnover. For restaurants affected by rolling lockdowns and capacity limits, this test will in most cases be easy to satisfy. 


The decline in turnover test has tailored provisions for: 

  • new businesses that did not start trading until after 1 April 2021-  the landlord and tenant must negotiate in good faith to agree on the turnover test period; and 

  • circumstances where a tenant’s comparison turnover was affected by a merger, acquisition or restructure or some other irregularity during the comparison period. 


Rent relief 

While the rent relief will be individually negotiated between each commercial landlord and tenant, some parameters have been set by the Victorian Government: 

  • At least 50% of relief offered must be a rent waiver, which means that you do not need to repay it. 

  • The other 50% of the rent relief can be made up of the following:  

    • reduction - rent is reduced for a period of time;  

    • remission-  the landlord agrees to waive a debt for rent arrears; and/or

    • deferral -  payment of rent will be postponed until a later date.  

  • The rent relief must be in proportion to the decline in turnover. This means that if your decline in turnover is 30%, relief will apply to 30% of your rent. 


What you need to do  

Notify: it is up to you to initiate the process and to prove that you are eligible for rent relief.  You will be required to: 

  • make a request in writing to your landlord, stating that you meet the eligibility criteria and outlining how the decline in turnover has been calculated;  

  • provide financial evidence such as accounting records, BAS records, banking statements or a statement from your accountant; and 

  • make a statutory declaration that the information provided to the landlord is true to the best of your knowledge and belief.   

Your landlord will have confidentiality obligations in relation to personal and financial information you provide.  


Negotiate: the rent relief scheme relies on good faith negotiations between you and your landlord. This means that you must genuinely try to reach an agreement, acting honestly and reasonably in negotiations. There are monetary penalties for providing any false or misleading document or information to your landlord. 


Navigate: if you make a rent relief agreement with your landlord, it is important to make sure that you comply with its terms and all other terms of your lease. The protection against eviction included in the Victorian rent relief package only applies to tenants who comply with both of these agreements. 


Negotiation Tips 

  • Put everything in writing so that there is a clear record of the communications. Verbal negotiations can help to work through any sticking points but should always be followed with an email or document confirming what was discussed and agreed. 

  • Keep in mind that everything you say may end up being reviewed by a Victorian Small Business Commission mediator, VCAT or a court.  Make sure your communications are clear, professional and courteous. 

  • Be prepared to compromise- the aim of mediation is to reach an agreement that both parties are happy with, which usually requires concessions on both sides. 


What to do if you can’t agree 

If you can’t reach an agreement, you can apply to the VSBC for free mediation. The application process will require you to show that you have attempted to negotiate in good faith and you will be asked to submit all applicable documents. 


What happens at mediation 

You will be appointed an independent third party to help you negotiate. Mediators are skilled in working through stalemates and in helping each side to see the other party’s perspective. They can assist with finding practical and sometimes creative solutions. 


It is in everybody’s interests to reach an agreement at mediation. If you do, it will be documented as a legally binding contract. If you are unable to agree, the mediator does not have the power to force a resolution. The dispute can then be referred to the VSBC for a binding order, to VCAT or to a court. These dispute resolution processes are often more time consuming, stressful and resource-intensive than mediation. 


Relief for your landlord 

Tenants concerned about the financial impact that rent relief will have on their landlord should note that landlords will receive some government support through tax reductions of up to 25%. Government grants of up to $3000 will also be available to small landlords experiencing financial hardship. 


Where to go for help 

All details of the rent relief package are available in the Commercial Tenancy Relief Regulations 2021. Further information for Victorian businesses is available from the VSBC. 


Misty Kunze