Small Business Commission releases Guidelines in relation to the operation of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic)

The Victorian Small Business Commission has published a FAQ guideline to assist landlords and tenants in understanding the operation of the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) (“Regulations”).

To read the Commission’s FAQs click here.

For further information on the Regulations, please see our previous article Coronavirus and Victorian Retail and Commercial Tenancies- The Mandatory Code and the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic).

The FAQs deal with many questions that landlords and tenants have been asking about the application of the Regulations.

We set out below some of the most frequently asked questions that we have received since the Regulations were passed and the responses of the Victorian Small Business Commission extracted from the FAQ Guidelines.

We note that the answers provided to the questions in the FAQ guidelines is useful in terms of understanding what information a tenant should provide to a landlord, however, a tenant may choose to provide more information. The decision about what information a tenant should provide to a landlord and what information a landlord should request from a tenant, will need to be assessed on a case by case basis in consultation with the parties lawyers and accountants.

How is ‘turnover’ defined?

Turnover is defined as the annual turnover of an SME for a financial year. It is the total of:

  • the proceeds of sales of goods and/or services;
  • commission income;
  • repair and service income;
  • rent, leasing and hiring income;
  • government bounties and subsidies;
  • interest, royalties and dividends; and
  • other operating income.

A landlord can request turnover information from the tenant to help inform their offer of rent relief.

How is turnover calculated?

Examples of ways a tenant can calculate turnover include:

  • comparing their actual turnover for March 2020 with March 2019; or
  • comparing likely turnover for April 2020 with actual sales for April 2019; or
  • comparing likely turnover for the April to June quarter with actual sales in that quarter in 2019; or
  • comparing actual or likely turnover for a later month or quarter to the same period in 2019 until the end of the relevant period.

To work out likely turnover, tenants need to use a cash or accruals basis to calculate a decline in turnover. However, they must use the same method for both periods. This means that if they used a cash basis to work out turnover in March 2020, they will need to use a cash basis to work out turnover in March 2019 and:

  • make a reasonable estimate; and
  • document the reasons for the estimate.

The ATO offers further guidance in calculating turnover.

What turnover information is appropriate for a landlord to request from the tenant to help inform their offer of rent relief?

A landlord can ask the tenant for information:

  • extracted from an accounting system;
  • extracted from BAS; and
  • provided to a financial institution.

What turnover information is not appropriate for a landlord to request from a tenant to help inform their offer of rent relief?

A landlord should not:

  • request future cash flow projections;
  • request balance sheets, profit and loss or year to date financials;
  • request the tenant’s bank balance;
  • require the financial information to be verified, examined, assured, audited or provided by a third party such as an accountant; or
  • require an accountant to provide a letter of comfort or similar on the financial information.

We note that the answers provided to the questions in the FAQ guidelines are useful in terms of understanding what information a tenant should provide to a landlord, however, a tenant may choose to provide more information. The decision about what information a tenant should provide to a landlord and what information a landlord should request from a tenant, will need to be assessed on a case by case basis in consultation with the parties’ lawyers and accountants.

For any queries regarding the application of the National Cabinet Mandatory Code Of Conduct SME Commercial Leasing Principles During Covid-19, the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic) or the Regulations, please contact Evelyn Marcou on 0409 384 025 or Raynia Theodore on 0419 877 345.