COVID-19 Commercial Leases Code in WA


This article applies to organisations that are party to a commercial lease.

Commercial Tenancies (COVID-19 Response) Regulations 2020 No.68 (WA)

The Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA) (the Regulations) commenced on 30 May 2020.

Code of Conduct

Schedule 1 of the Regulations adopts a Code of Conduct (the Code) under powers conferred by section 13 of the Commercial Tenancies (COVID-19 Response) Act 2020 (WA) (the Act). The Code sets out principles governing small commercial leases during the COVID-19 pandemic.

Note that the Regulations, like the Act, will cease at the end of the Emergency period, being the period beginning on 30 March 2020 and ending on a day to be prescribed by regulation. If a day is not prescribed the last day of the emergency period is to be before 29 September 2020.

The key principles of the Code are outlined below.

Eligible tenant

The Code applies to small commercial leases where the tenant is an ‘eligible tenant’.

Eligible tenant means, in relation to the small commercial lease, a tenant where:

  • the following turnover in the financial year ending on 30 June 2019 was less than $50,000,000:
    • if the tenant is a franchisee — the turnover of the business conducted by the tenant at the land or premises that are the subject of the small commercial lease;
    • if the tenant is a corporation that is a member of a group — the turnover of the group;
    • in any other case — the turnover of the business conducted by the tenant at the land or premises that are the subject of the small commercial lease;

and

  • the tenant:
    • qualifies for the Jobkeeper scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) section 7; or
    • has, at any time during the emergency period, satisfied the decline in turnover test set out in section 8 of those Rules.

Note that Corporations constitute a group if they are related bodies corporate (as defined in the Corporations Act 2001 (Cth) section 9).

Overarching obligations

Under clause 4 of the Code, in negotiating a small commercial lease, landlords and tenants must:

  • cooperate; and
  • act reasonably and in good faith; and
  • act in an open, honest and transparent manner; and
  • provide each other with sufficient and accurate information that is reasonable for them to provide in the circumstances for the purposes of the negotiations; and
  • not make onerous demands for information from each other.

Offering and negotiating rent relief

Under clause 6 of the Code, where a landlord receives a valid request for rent relief from an eligible tenant, the landlord must offer rent relief within 14 days after receiving the request unless otherwise agreed. The offer must be in writing and in accordance with the following principles:

  • An offer of rent relief must apply to the emergency period.
  • Rent relief offered by the landlord must be at least proportionate to the reduction in the tenant’s turnover that is associated with the business conducted at the land or premises.
  • An offer of rent relief may relate to up to 100% of the rent payable under the small commercial lease.
  • An offer of rent relief must provide that not less than 50% of the rent relief is to be in the form of a waiver of rent, unless the landlord and tenant otherwise agree in writing.
  • An offer of rent relief must provide that more than 50% of the rent relief is to be in the form of a waiver of rent if failure to provide more than 50% of the rent relief in the form of a waiver of rent would compromise the tenant’s capacity to fulfil the tenant’s ongoing obligations under the small commercial lease; and the landlord has the financial capacity to provide more than 50% of the rent relief in the form of a waiver of rent.

Subscribers should note that following receipt of the landlord’s offer of rent relief, the parties must negotiate with a view to agreeing on rent relief to apply during the emergency period.

Payment of deferred rent and extension of term of lease

Under clause 9 of the Code, where rent payable under a small commercial lease is deferred by variation to the small commercial lease or by a rent relief agreement, a landlord must not request payment of any part of the deferred rent until the end of the emergency period or the expiry of the terms of the small commercial lease (whichever occurs earlier).

In this situation, the landlord and the tenant must vary the small commercial lease, or otherwise agree, so that the tenant must pay the deferred rent to the landlord amortised over the greater of the balance of the term of the small commercial lease or a period of not less than 24 months.

If the deferred rent leads to an extension of the lease, the landlord’s offer must be on the same terms and conditions that applied under the small commercial lease immediately before the emergency period. This extension must be equivalent to the period for which the rent is deferred, unless otherwise agreed between the parties.

Recovery of outgoings and other expenses

Under clauses 11 and 12 of the Code, where an eligible tenant under a small commercial lease is not able to conduct their business at the land or premises for any part of the emergency period, the landlord must consider waiving recovery of any outgoing or other expense payable for that period.

If the landlord decides to reduce the outgoings during the emergency period, the landlord must not require the tenant to pay any amount of money in respect of the outgoing that is greater than the tenant’s proportional share of the reduced outgoing payable under the lease. If a tenant has paid money in this way, the landlord must reimburse the excess amount as soon as possible.

Confidentiality

Under clause 13 of the Code, a landlord or tenant under a small commercial lease must not, directly or indirectly, disclose protected information obtained under or in connection with the operation of the Code unless the disclosure is authorised.

The disclosure of protected information is authorised if it is disclosed in good faith in any of the following circumstances:

  • with the consent of the person to whom the information relates;
  • to a professional adviser or financier who agrees to keep it confidential;
  • under a written law;
  • for the purposes of making an application under section 16(1) or a request under section 18 of the Act;
  • for the purposes of resolving a dispute with the assistance of the Commissioner (as defined in section 14(1) of the Act);
  • for the purposes of an alternative dispute resolution proceeding under the Small Business Development Corporation Act 1983 (WA) in respect of a dispute;
  • for the purposes of proceedings under the Act in the State Administrative Tribunal or in a court.

Protected information means the name, address or contact details of any person (other than the landlord or the tenant under the small commercial lease); or information relating to business processes or financial information (including information about the trade of a business).

Conclusion

Organisations should be aware of the changes introduced by the Regulations and update their policies and procedures accordingly for the duration of the emergency period.


Contact

For further information please contact the Law Compliance team:

Phone: 1300 862 667

Email: info@lawcompliance.com.au