Dear Readers
Is there an expiry date?
What are some of the key terms of the Act?
By Eileen Tay
Lawyer at Tan and Tan Lawyers
Covid-19 Response Act and its Effect
on Commercial Tenancies in WA
In
response to the COVID-19 pandemic and its staggering impact on small businesses
nationwide, the Federal Government of Australia introduced a Mandatory Code of
Conduct for commercial tenancies (National Code). Subsequently on 23 April
2020, the Western Australian government gave effect to the National Code by
passing the Commercial Tenancies
(COVID-19 Response) Act 2020 (WA) (the Act).
This
article will explore how the Act affects commercial landlords and tenants in
Western Australia.
Does the Act apply to you?
The
Act covers "small commercial leases" in the following categories:
·
retail shop leases, as defined in the Commercial
Tenancy (Retail Shops) Agreements Act 1985
·
leases where the premises are used for a
"small business", as defined in the Small Business Development
Corporations Act 1983 (WA)
·
leases to incorporated associations, as defined
in the Associations Incorporation Act 2015 (WA)
·
any other leases prescribed by regulations
Is there an expiry date?
The
Act will be repealed a year after the end of the Emergency Period. The Emergency
Period is the period beginning on 30 March 2020 and ending on a day
prescribed by regulations, or if a day has not been prescribed, it will be
assumed to end on 29 September 2020.
What are some of the key terms of the Act?
1.
Prohibited actions cannot be taken during
Emergency Period
During the Emergency Period, a commercial landlord is
prohibited from taking a Prohibited Action, such as:
·
evicting the tenant
·
terminating the lease
·
exercising right of re-entry or possession
·
calling on securities provided by the tenant
such as a bond or bank guarantee
·
requiring the tenant to pay interest on unpaid
monies
·
exercise any other remedy that may ordinarily be
available to the landlord under law
if there is a breach by the tenant consisting of:
·
a failure to pay rent or other monies payable to
the landlord
·
a failure to keep their business open at hours
or times specified in the lease
·
any act or omission of a kind prescribed by regulations
Regulations may set out circumstances in which landlords would
be allowed to undertake a Prohibited Action.
2.
Rent cannot be increased
Rent cannot be increased during the Emergency Period, other
than rent that is determined by reference to turnover.
3.
Introduction of a WA Code of Conduct
The WA government has proposed a WA Code of Conduct (WA Code) to
be adopted by regulation. The WA Code may adopt the National Code in part or
whole, or may modify it.
It is expected that the WA Code will provide substance in
terms of how the Act is to be implemented on the ground. Landlords and tenants
in WA will have to abide by the terms of the WA Code once it is published.
Currently, it is unclear when the WA Code will be finalised
but previous estimates indicate it may be at least 2 weeks away.
4.
Dispute Resolution
Both landlords and tenants may apply to the Small Business
Commissioner to resolve via mediation a dispute that has arisen out of the
operation of the Act, including a code of conduct dispute and a financial
hardship dispute. If the dispute is unresolved, the matter may be referred to
the State Administrative Tribunal (SAT).
A financial hardship dispute means a dispute where the
tenant has breached the lease by failing to pay rent or other monies payable to
the landlord, the landlord claims the breach was not a result of the tenant
suffering financial hardship and the landlord has not granted a rent waiver,
deferral or reduction to the tenant.
If
the SAT is satisfied that the tenant's breach is not a result of the tenant
suffering financial hardship, the SAT has a wide range of powers in granting
relief to the landlord, including termination of the lease and equitable
remedies.
What should you do next?
1.
Take an open-minded approach to
negotiations
The Covid-19 pandemic has caused a widespread economic
downturn and it is an important time to support each other via open dialogue
and sustainable short and long term solutions. Landlords and tenants alike
should be prepared to be candid in their communications, to negotiate in good
faith, and to make concessions with a real focus on riding out the crisis
together.
2.
Ensure that agreements are temporary
As the WA Code has not been finalised, and the circumstances
are changing unpredictably, it is prudent to ensure that any arrangements or
agreements made between the parties are short-term, and able to be varied as
the situation evolves and when the WA Code is published.
3.
For tenants: be prepared to disclose
Tenants should be prepared to provide turnover and other
information as required to the landlord to facilitate discussion.
4.
For landlords: do not unnecessarily delay
discussions with tenants
The WA government introduced the Commercial Tenancies (COVID-19 Response (Early Termination) Bill 2020
(WA) to be implemented as a 'hammer' on landlords if there is evidence of
widespread inaction by landlords in negotiating relief for tenants or for not
bargaining in good faith. If passed, it could allow tenants experiencing severe
financial distress to terminate leases without financial penalty.
5.
Check if you are eligible for land tax
relief
The WA government has announced a land tax relief package of
up to AUD 100 million for commercial landlords if they satisfy the eligibility
criteria. To check eligibility and apply for the grant, visit https://www.smallbusiness.wa.gov.au/blog/land-tax-assistance-landlords.
6.
Speak to your lawyer
This is understandably a confusing time for landlords and
tenants alike. It may be difficult to fully make sense of your rights and
obligations particularly as they are evolving constantly. Your lawyer can
advise you on how the Act affects you specifically, explain the options
available to you, and assist you with negotiations to ensure you do not fall
foul of the Act.
If you are a SME commercial landlord or tenant, contact us for
assistance.
Lawyer at Tan and Tan Lawyers
