VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
RESIDENTIAL TENANCIES DIVISION
RESIDENTIAL TENANCIES LIST	
vcat reference No. R2020/29704	
 
CATCHWORDS	
Application for reduction of rent under section 540 of the Residential Tenancies Act 1997 – no legislative guidelines on the matters to take into account – reference to the considerations of the Chief Dispute Resolution Officer – matter referred to VCAT as not appropriate for determination by the Residential Tenancies Dispute Resolution Scheme – applicant tenant is a short stay business seeking a rent reduction based on a percentage of income for the one building, not a percentage of rent – insufficient evidence to make proper assessment of what is fair and reasonable – application dismissed.	
APPLICANt	A Perfect Stay Pty Ltd (ACN 624 563 300)	
RESPONDENT	Dersoma Enterprises Pty Ltd (ACN 006 246 331)	
BEFORE	K. Campana, Member	
HEARING VENUE	Melbourne	
HEARING TYPE	Final Hearing	
DATE OF HEARING	15 February 2021	
DATE OF ORDER	3 May 2021	
CITATION	A Perfect Stay Pty Ltd v Dersoma Enterprises Pty Ltd (Residential Tenancies) [2021] VCAT 414	
Order 
The names of the applicant and the respondent are incomplete on the register. The principal registrar is directed to make the following amendments: The name of the applicant is amended to include the ACN of 624 563 300 and the name of the respondent is amended to be Dersoma Enterprises Pty Ltd (ACN 006 246 331).

For the written reasons provided, the Tribunal orders that:

The application is dismissed.

K. Campana
Member			

APPEARANCES:		
For Applicant	Karl Divers, Manager	
For Respondent
	Ben Nash, Real estate agent	

Reasons
1	With restrictions around travel, short term holiday and business accommodation rentals have suffered significantly during the Covid-19 pandemic. While many businesses have closed their doors, those that have remained open have sought to keep their operations going by relying on the protections provided by the Covid-19 Omnibus (Emergency Measures) Act 2020 (Emergency Measures legislation).
2	A Perfect Stay Pty Ltd (tenant) is one such operator who has made application to the Tribunal seeking a rent reduction on a nine apartment complex in Burke Road, Glen Iris (the rented premises) that it leases from the developer and owner, Dersoma Enterprises Pty Ltd (landlord).
3	At the time of the application in October 2020, the tenant was seeking a rent reduction of 80 percent of net revenue for the period from July 2020 to the end of the Emergency Measures legislation. By the time of the hearing in February 2021, most of the projected income figures could have been replaced by actual earnings.
4	For the reasons that follow, in particular a lack of clarity around the true financial position of both the landlord and tenant, I am not satisfied that the tenant should receive a rent reduction and the application is dismissed. 
The Law on Applications for Rent Reduction
5	The Emergency Measures legislation introduced Part 16 into the Residential Tenancies Act 1997 (RT Act), in particular section 540 which states:
540	Reduction in rent and payment plans – tenancy agreements
(1) 	On an application of a tenant under a tenancy agreement, the Tribunal may make an order—
(a) 	reducing the rent payable under the tenancy agreement for a period specified in the order; or
(b) 	that the tenant enter into and abide by a payment plan to pay the rent or a reduced amount of rent, and any outstanding arrears of rent, under the tenancy agreement for a period specified in the order.
(2) 	If the Tribunal makes an order under subsection (1), the Tribunal may also make an order varying any of the terms of the agreement as necessary because of the reduction of the rent or the payment plan.
(3) 	The Tribunal may cancel or amend an order under this section.
(4) 	If the Tribunal makes an order under subsection (1)(b), the Tribunal must specify the terms of the payment plan. 
6	The Tribunal’s decision about whether to reduce the rent is discretionary. Section 540 is absent any legislative guidance about how the Tribunal is to approach the exercise of this discretion.
7	It is clear that the purpose of section 540 is to accommodate situations whereby a tenant finds themselves in financial distress and are unable to pay the rent under a tenancy agreement. It is a mechanism to reduce the rent to a figure that takes into account the financial circumstances of the tenant and balances those with the financial circumstances of the landlord.
8	The Residential Tenancies Dispute Resolution Scheme, and in particular the Chief Dispute Resolution Officer, was tasked with determining these matters in the first instance, under the Residential Tenancies (COVID-19 Emergency Measures) Regulations 2020 (Covid Regulations). In determining an application for rent reduction, the Chief Dispute Resolution Officer was required to make an order, under regulation 16(6) of the Covid Regulations, if satisfied that it was “fair and reasonable in all the circumstances to do so”.
The Tenant’s Application for Rent Reduction
9	The tenant is a national short-term accommodation provider that manages accommodation bookings both in its own right, and for and on behalf of property owners. In Melbourne alone it has 70 properties on its books, with many of these having numerous apartments within those properties.
10	On 6 March 2020, just days prior to the World Health Organisation declaring Covid-19 a pandemic on 11 March 2020, the tenant entered into occupation of the rented premises.
11	By agreement, the tenant was to pay rent of $18,500 a month, with the first four months being rent free. Its business model was to rent the units within the rented premises on a short-term basis, to both leisure and corporate clients. 
12	Within two weeks of commencing operations from the rented premises, the tenant’s manager, Karl Divers, says the rented premises had a 67 percent occupancy rate. But by July, through travel bans and lockdowns, the short-term rental market had plummeted and with the help of the landlord’s agent, four of the nine apartments were converted to long-term fully furnished rentals. Mr Divers says the rent being received for each of these long-term rentals is enough to cover the rent on the apartment but does not cover any operating costs.
13	By 1 October 2020, the tenant made application to the Tribunal for a rent reduction, after it was assessed by the Dispute Resolution Scheme as “not suitable for alternative dispute resolution pursuant to Regulation 14(2)(h), due to the quantum of the arrears”. The application stated—
We propose to pay 80% of the nett revenue from all rentals [short-term rentals and permanent sub-leases], so we will pay as much as we can, as quickly as we can, up to $18,500 per month. This and current arrears since 1st July 2020, is to be treated as a discount.
14	At the first hearing of this matter on 9 December 2020, I made a number of directions related to the documents that the parties were to file related to the issues in dispute. Specifically, the parties were put on notice that—
For the Tribunal to assess the financial viability of a rent reduction and/or payment plan and to determine what is a fair and reasonable amount for the rent, the Tribunal requires supporting documentation from both the landlord and tenant to understand the nature of the tenancy agreement, and the financial circumstances of the parties (and their associated directors).
15	Due to a number of reasons, the matter finally came on for hearing before me on 15 February 2021. By this time, the tenant had made payments in accordance with the rent reduction it was seeking, being 80% of net revenue for the rented premises, for eight of the nine months—
Month of Occupation	Rent Paid	
July 2020	$10,902	
August 2020	$12,640	
September 2020	$10,417	
October 2020	$9,162	
November 2020	$18,500	
December 2020	$18,500	
January 2021	$14,900	
February 2021	$18,500	
March 2021	To be paid	

16	The documents provided by both sides for that hearing were scant, to say the least, devoid of any detail and fell well short of the categories of financial documents to be expected from corporate entities to support claims of financial hardship. 
17	For the tenant, the documents submitted comprised—
a	a statement about its operations as it related only to the rented premises including the rental status as at 15 December 2020, 
b	a table said to be a profit and loss statement for the six-month period from September 2020 to February 2021, for just the rented premises,
c	a table of income and expenses for the March 2020 and June 2020 financial quarters for what appears to be the tenant, and all its operations,
d	an activity statement to the Australian Taxation Office for April 2020,
e	an account running sheet with the Australian Taxation Office for the period from 1 January 2020 to 30 June 2020, and
f	copies of correspondence between the tenant and agent for the landlord.
18	For the landlord, the documents submitted comprised—
a	a statement about the lease agreement, the efforts made by the landlord to assist the tenant and the financial impact of the tenant’s failure to pay rent, 
b	a letter from Alexander Spencer (an accountancy firm), and
c	a tenant ledger.
19	Both tenant and landlord substituted their evidence with oral evidence at the hearing. Even so, it was bereft of any particularity that would enable the Tribunal to properly carry out an assessment of what was fair and reasonable. 
20	The tenant explained that while it has many operations around the country, the profit and loss statement and income and expenses provided only relate to the business operations for the rented premises. Mr Divers says the tenant has paid what it could during the relevant period taking into account its net revenue and operating expenses, at a maximum amount of the rent for the relevant month.
21	On the evidence presented I am unable to conclude that, if as asserted, the tenant has in fact paid 80 percent of its net revenue. The documents submitted are absent any detailed information to enable an assessment of the actual income and expenses for the tenant for the relevant nine-month period. The documents are not accountant prepared statements, but are tables prepared for the purposes of this hearing by the tenant. There are no source documents, no bank statements, and no data for the period that the rent reduction is being sought. In any event, even if I could draw something from the profit and loss statement, the income and expenses relate only to the rented premises. It is the tenant’s financial situation as a whole that needs to be considered in any rent reduction application, not just the income and expenses for one part of its operations. What the tenant is asking the Tribunal to do, is akin to an individual tenant, who has multiple sources of income, asking the Tribunal to only take into account one of those sources. Plainly such a proposition is untenable.
22	I cannot be satisfied on the evidence presented by the tenant that they are in financial hardship and cannot afford the monthly rent of $18,500. The manner in which the tenant has presented the evidence does not allow me to discern an accurate picture of the tenant’s financial circumstances to a reliable degree. 
23	The way the landlord’s financial position has been presented, as a matter of fact, is similarly unclear. No evidence was led by the landlord as to what other sources of income the landlord has, or what its expenses are, including any finance payments related to the development of the rented premises. The limited information provided by the landlord’s accountant that “the company’s only asset is this building and from the date the lease began to now the company is showing a loss of $95,397”, raises more questions about the landlord’s operations, income and expenses, than it answers. The agent for the landlord was unable to provide any further information about the landlord’s circumstances, beyond the accountant’s statement. 
24	This is the tenant’s application. It is for the applicant to establish that their financial circumstances are such, that the Tribunal’s discretion should be exercised. The tenant’s evidence about its ability to pay the rent as agreed under the tenancy agreement is vague at best and falls well short of providing a basis for the Tribunal to consider exercising the discretion to order a rent reduction. The application for a rent reduction must be dismissed.

K. Campana
Member