We have been hearing from our friends at the Bar. Some have told us about issues they have been having with paying rent on their Chambers, and they are not sure if they can claim rental relief as a commercial tenant.
As you may know, the mandatory ‘Code of Conduct’ for commercial tenancies allows tenants to seek relief on their rents (see here and here) if they are eligible for the Jobkeeper payment (which is used as a proxy for ‘financial distress’).
In other words, if you are eligible for the Jobkeeper payment, your landlord should be compelled under the mandatory Code to provide you with a rent reduction or deferral in proportion to your financial distress. This is something many shops and retail tenants have already taken advantage of.
Service company arrangements
However, when it comes to Barrister Chambers this can be less straightforward. This is because it is common for Barristers to rent their Chambers through a controlled service company, rather than directly. The Barrister pays ongoing ‘floor fees’ to the service company under a separate Service Agreement, which the service company declares as income, and uses to pay the rent on the Chambers. Generally, the service company will be receiving the ‘floor fees’ and other administrative matters.
This all means that the service company (as the tenant) needs to demonstrate eligibility for the Jobkeeper payment for it to compel its landlord to give rent relief. Showing this eligibility is not straightforward. (You may note that it does not specifically require that the Jobkeeper payment has actually been applied for; only that it would be eligible.)
Eligibility of Jobkeeper
Eligibility for the Jobkeeper payment is set out in the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (the Rules), with section 7(1) stating these requirements:
- On 1 March 2020, the entity carried on a business in Australia, or was a non-profit body that pursued its objectives principally in Australia; and
- The entity has satisfied the decline in turnover test at or before the time.
The service company may have difficulty in proving it carries on a business, if it is simply a ‘pass-through’ entity. This may depend on your personal circumstances, and what else the service company is doing. But as a general rule, the concept of a business is very wide, and should cover the commercial activity of providing facilities to barristers for reward.
The decline in turnover test generally requires the entity to show at least a 30% reduction in its GST turnover when comparing the current month or quarter to the same time last year. For service entities this decline may be demonstrated relatively easily.
It is true that your service company would still be entitled to your ‘floor fees’ on an accruals basis. However, the GST turnover test used for Jobkeeper leaves it open for service companies to apply an ‘accruals basis’ or ‘cash basis’ method for calculating its turnover comparison. As a result, if you and your service company agree to suspend service payments during this difficult time, it is likely that the company will suffer a 30% reduction in turnover when comparing April 2020 to April 2019 (or, you can decide to compare 1 April 2020 to 30 June 2020, to that same quarter in 2019).
In that case, it may be possible for your service company to achieve eligibility for the Jobkeeper payment. On that basis, your service company should be able to write to the Chambers and request for a reduction or deferral in rent under the mandatory Code.
We note that there are anti-avoidance rules that apply to the Jobkeeper regime. Our view is that if you are genuinely suffering a downturn in work as barristers as a result of COVID-19, and in turn your service company suspends service fees for a period, then this represents a completely legitimate set of circumstances.
Understanding rent relief under the Code, and the Jobkeeper eligibility linked to that, can be complicated and take you time to untangle.
If you are interested in whether you are able to receive relief on your Chambers rent in this way, we recommend you contact us on 1300 654 590 or email@example.com to provide an initial view about your circumstances.
Andreyev Lawyers is a boutique law firm based in Sydney, Adelaide and Melbourne, which has been providing specialist tax and commercial law advice for many years.
Andrew Andreyev, Principal, holds Bachelor degrees in Commerce and Law from Adelaide University, as well as a Masters of Law (in Taxation and International Law) from Melbourne University. He is admitted to practice law in Australia and the United Kingdom. Andrew is a long-standing Chartered Tax Adviser with the Taxation Institute of Australia (TIA), a Fellow of the Society of Trust & Estate Practitioners (STEP).
Damien Lehmann, Senior Lawyer, holds a Bachelor degree in Law from Wollongong University, and recently completed a Masters of Law (Taxation) from Sydney University. Member of the Taxation Institute of Australia.
The information contained in this post is current at the date of publishing – 18 May 2020