Covid 19 and its effects on commercial tenancies in WA

Dear Readers

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The Act will be repealed a year after the end of the Emergency Period.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.

By Eileen Tay
Lawyer at Tan and Tan Lawyers