On 23 April 2020, the WA State parliament passed the Commercial Tenancies (COVID-19 Response) Act 2020 (Act). The Act dealt with numerous issues such as lease termination and dispute resolution but left a number of important aspects to be settled by the regulations, most notably the rent waiver/deferral provisions.
On 29 May 2020, the Commercial Tenancies (COVID-19 Response) Regulations 2020 were adopted which brought in the WA Code of Conduct.
1. Who Does the Legislation Apply to?
The Act applies to small commercial leases which are defined to mean:
(a) a retail shop lease under the Commercial Tenancy (Retail Shops) Agreements Act 1985; or
(b) a lease where the tenant owns or operates a small business (as defined in the Small Business Development Corporation Act 1983) and uses the land or premises that are the subject of the lease for the purpose of carrying on that business; or
(c) a lease where the tenant is an incorporated association under the Associations Incorporation Act 2015.
For the purposes of small commercial leases, agreements or leases under the Residential Parks (Long-stay Tenants) Act 2006, Residential Tenancies Act 1987, Land Administration Act 1997 and Mining Act 1978 are excluded.
2. Obligations of the Landlord and Tenant
In negotiating, the landlord and tenant must:
(b) act reasonably and in good faith;
(c) act in an open, honest and transparent manner
(d) provide sufficient and accurate information; and
(e) not make onerous demands for information.
3. Eligible Tenants for Rent Reduction
To be an eligible tenant, the runover in the 2018/19 financial year must have been under $50 million and the tenant either qualifies for JobKeeper or at any time during the Emergency period satisfied the decline in turnover test for JobKeeper (ie 30% reduction in turnover).
4. Rent Relief
During the emergency period, an eligible tenant may request rent relief and the landlord has 14 days to respond. This request must be in writing, including:
(a) A statement that the lease is a “small commercial lease” and that they are an eligible tenant;
(b) sufficient information to evidence they are an eligible tenant; and
(c) sufficient information evidencing the reduction in tenant’s turnover, during the emergency period, for the business at that premises.
The rent relief offered must apply for the period of the emergency period and be proportionate to the reduction in the tenant’s turnover, ie a 60% reduction in turnover should be at least a 60% offer of rent relief. At least 50% of that rent relief must be a waiver of rent, with the balance being a deferred, if:
(a) the landlord has the financial capacity to waive rent equal to 50% of the rent relief; and
(b) if less than 50% of the rent relief is waived, it would compromise the tenant’s ability to comply with ongoing lease obligations.
If the tenant’s financial position materially changes after the rent relief has been agreed in writing, the tenant may make further requests for rent relief.
If the landlord was subleasing the premises to the tenant, the landlord must pass on to the tenant any rent relief the landlord received under the head lease.
If the landlord and tenant had entered into a rent relief agreement before the WA Code was announced and its terms are less favourable than the WA Code, the tenant can still make a request under the WA Code.
The landlord must consider waiving any outgoings for the period in which the tenant was not able to conduct their business.
6. Deferred Rent
The Landlord cannot request payment of the deferred portion of the rent relief until the earlier of the end of the emergency period (currently 29 September 2020) or the expiry of the lease. The deferred amount is to be paid off over the greater of 24 months or the balance of the lease term.
7. Lease Extension
The Landlord must offer an extension of the lease (on the same terms) for the same period in which the rent is deferred, except:
(a) Where the landlord is sub-leasing to the tenant and an extension would be inconsistent with the head lease; or
(b) An extension would be inconsistent with any other contract or agreement relating to the premises entered by the landlord with a third party.
8. Lease Termination
The act states that a Landlord may not evict the tenant, re-enter, take possession, terminate the lease, take recovery on security provided by the tenant or require payment of interest on unpaid rent where the breach of the small commercial lease is due to:
(a) a failure to pay rent or other amount payable to the landlord; or
(b) the premises not being open as may be required under a small commercial lease.
We also note that the WA Code of Conduct may detail circumstances in which a Landlord may take such prohibited action or list further breaches by the tenant which the Landlord may not take prohibited action.
The act provides mechanisms for dispute resolution, including for:
(a) Financial hardship dispute – where the tenant has breached the lease during the COVID-19 emergency period by failing to pay rent or any other amount payable and the Landlord claims the breach was not due to the tenant suffering financial hardship (defined as financial hardship due to restrictions imposed by law, changes in societal behaviours or any other consequence of the COVID-19 pandemic); and
(b) Code of Conduct Dispute – any dispute arising out of the WA Code of Conduct, once it is released.
The State Administrative Tribunal may make a range of orders, including:
(a) Dismiss the proceedings;
(b) Ordering a party to pay money or do/not do some particular act;
(c) If it is a Financial Hardship Dispute, terminate the lease; and
(d) If it is a Code of Conduct Dispute, any order appropriate to give effect to the WA Code of Conduct, including deferral or waiver of a specified amount of rent payable by the tenant for a period.
In making an order, the State Administrative Tribunal is to have consideration to the financial impact of COVID-19 on the tenant’s business and capacity to meet lease obligations and the Landlord’s financial capacity.
If you need assistance understanding your rights to rent relief under the WA Code, negotiating rent relief or commencing dispute resolution proceedings, Laird Lawyers is available. Given the circumstances and that people needing assistance have had a significant downturn in turnover, Laird Lawyers are offering discounted rates and fixed fees to assist affected businesses during the COVID-19 Emergency Period.