The Commercial Tenancies (COVID-19) legislation is made up of two parts:

1. the Commercial Tenancies (COVID-19 Response) Act 2020 (WA); and
2. the Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA), which contains the WA Mandatory Code of Conduct (WA Code).

The Commercial Tenancies (COVID-19 Response) Act 2020 applies to small commercial leases during the emergency period. From 30 September 2020, some changes will be made to how the legislation applies.

A small commercial lease is a:

• retail shop lease as defined in the Commercial Tenancy (Retail Shops) Agreements Act 1985 (CTA Act); or
• a lease where the tenant is a small business as defined in the Small Business Development Corporation Act 1983 (SBDC Act);
• lease where the tenant is an incorporated association as defined in the Associations Incorporation Act 2015 (AI Act); or
• another type of lease prescribed by regulation.

Some parts of the legislation, such as the WA Code, only apply to an "eligible tenant". These are small businesses, including retail stores:

• with an annual turnover of less than $50 million; and 
• which qualify for the JobKeeper scheme or have experienced a decline in turnover of 30 per cent or more. Charities only need to show a 15 per cent reduction in turnover.

Protections in the Commercial Tenancies (COVID-19 Response) Act 2020 (WA) include a:

• moratorium on evictions due to non-payment of rent;
• freeze on rent increases;
• restriction on penalties for tenants who do not trade or reduce their trading hours;
• prohibition on landlords making a claim on any form of security (e.g. a bank guarantee or security deposit) for the performance of the tenant’s obligations under the lease; and
• prohibition on landlords progressing action against a tenant for a breach that occurred after 30 March 2020, but before the start of the new laws.

For the period from 30 March 2020 to 29 September 2020 these protections apply to all small commercial leases.  From 30 September 2020 to 28 March 2021 changes will be made so that these protections apply only to eligible tenants (these will be tenants who continue to qualify for JobKeeper or can meet the reduction-in-turnover test used for JobKeeper i.e. a loss of 30 per cent). 

Under the WA Code, landlords and tenants are required to negotiate in good faith to reach temporary arrangements about rent relief to be provided by landlords during the emergency period. 

The impact COVID-19 has had on a tenant’s turnover should be taken into consideration during negotiations to determine what temporary changes are appropriate, such as deferrals and/or reductions in rent payments.

The WA Code does not apply as broadly as the Act, as it only applies to "eligible tenants". These are small businesses, including retail stores, with an annual turnover of less than $50 million and which qualify for the JobKeeper scheme or have experienced a decline in turnover of 30 per cent or more. Small charities only need to show a 15 per cent reduction in turnover.

The WA Code requires landlords and tenants to act reasonably and in good faith with openness, honesty and transparency.

Commercial tenants and landlords must provide each other with sufficient and accurate information for the purposes of negotiations and not to make onerous demands of one another.

The WA Code outlines a process for tenants to request rent relief. Landlords are required to:

• offer relief at least proportionate to the reduction in turnover that the business has suffered; and
• provide at least half of that rent relief as a waiver, with the rest to be either deferred or waived.

Rent relief should be adjusted from time to time (but not more than once a month), as a tenant’s loss in turnover varies. For example, as a tenant’s business recovers and turnover increases, then rent relief should decrease by the same proportion.

The WA Code also deals with recovery of outgoings and expenses and confidentiality obligations. 

The WA Code is available on the Western Australian Legislation website. 

The WA Code will continue to apply after 29 September 2020. 

However, from 30 September 2020, if a tenant’s business improves so that they are no longer eligible for JobKeeper or cannot meet the decline-in-turnover tests for JobKeeper (because their loss in turnover is less than 30 per cent), then the WA code will no longer apply to that tenant.

On 7 April 2020, the National Cabinet released the Mandatory Code of Conduct – Small to Medium Enterprises (SME) Commercial Leasing Principles during COVID-19, and announced States and Territories would implement the Code via legislation or regulation.

For more information see the National Cabinet Mandatory Code of Conduct.

The WA Code applies to small commercial leases and is based on the national code principles outlined in this video:

The WA Government made modifications to the National Code to ensure it is suitable for Western Australia.

The WA Code is available on the Western Australian Legislation website.  

If an agreement cannot be reached under the WA Code, the Small Business Commissioner can assist to resolve the dispute. Disputes can be taken to the State Administrative Tribunal if they cannot be resolved by the Commissioner.

The legislation includes processes for resolution of disputes arising out of, or in relation to, the operation of the Act or WA Code, including provisions to protect landlords where tenants are refusing to pay rent despite the capacity to do so.

If you are experiencing difficulties negotiating with your landlord or tenant please contact the Small Business Development Corporation for advice and assistance.

After 29 September 2020, the ban on prohibited actions only applies if the tenant is impacted by COVID 19. If a tenant cannot prove they are eligible, then a landlord can take any action permitted under the lease, or general law, to enforce the lease. This includes action for non-payment of rent that occurs before or after 29 September 2020 (provided an agreement has not been made in relation to unpaid rent).

A landlord cannot ask for repayment of deferred rent until after 28 March 2021, or the end of the lease term (whichever is earlier).

The landlord should offer the tenant an extension of the lease term equal to the period for which rent is deferred (for example, if rent is deferred for 12 months, then offer a 12 month extension). The tenant is not obliged to agree to this extension.

In addition, the requirement to offer an extension of the term does not apply if it is inconsistent with a head lease, or other agreement or contract already entered into by the landlord with another person (for example, if the landlord has already entered into an agreement to lease the premises to a new tenant).

The tenant must provide sufficient and accurate information to show the reduction of turnover during the emergency period (or a relevant part).

This could include:

• sales reports from an accounting system;
• copies of business activity statements (BAS).

The parties are not permitted to make onerous demands for information, for example:

• future cash flow projections;
• balance sheets, or profit and loss, or year to date financials;
• bank balance details or statements; and
• for financial information to be verified, audited or provided by a third party such as an accountant.

Eligibility for JobKeeper and the Act and Code are assessed periodically but after 29 September 2020 these assessments will be done quarterly.  The relevant periods are:

• 30 March 2020 to 27 September 2020;
• 28 September 2020 to 3 January 2021; and
• 4 January 2021 to 28 March 2021.

Visit the Australian Tax Office COVID-19 information for more details. 

Assessment of loss in turnover may be carried out more often (but not more frequently than monthly) in order to determine the amount of rent relief. This will allow for adjustment of that relief as a tenant’s financial circumstances change.  Landlords and tenants should work together to agree on an appropriate timeframe that suits their circumstances. 

If my tenant is no longer COVID-19 affected and an eligible tenant can I recommence action that started between 30 March 2020 and 24 April 2020?

Yes

Yes, the tenant is an eligible tenant because they have suffered the same loss of turnover applicable to qualify for JobKeeper. The code of conduct will apply (including the requirement to provide rent relief).

If the tenant is not an eligible tenant, rent can be increased in accordance with the lease from 29 September 2020.

If the tenant is an eligible tenant, rent cannot be increased until after the extended emergency period which ends on 28 March 2021.

If the tenant’s circumstances change and they become eligible, they can make a written request to the landlord for rent relief. The landlord and tenant need to negotiate in accordance with code of conduct principles.

The ban on prohibited actions does not apply. After 29 September 2020, a landlord is permitted to take action to enforce its rights if a tenant is insolvent or bankrupt. 

Get your financial records ready to prove a turnover decrease of 30 per cent or more and write to, or email, your landlord. Your landlord must respond within 14 days.

For practical advice on the best way to reach an agreement on rent relief under the WA code, visit the Small Business Development Corporation's website.

If you have a small commercial lease and you continue to be an eligible tenant (annual turnover of less than $50 million and qualify for the JobKeeper scheme or have had a decline in turnover of 30 per cent or more) the Commercial Tenancies (COVID-19) legislation, including the WA Code, will apply to you.

An eligible tenant can ask their landlord to continue existing rent relief arrangements or renegotiate rent relief for the period after 29 September 2020. Tenants should provide landlords with details of loss of turnover on an ongoing basis, e.g. month by month. Rent relief should be proportionate to a tenant’s reduction in turnover and should be adjusted as turnover changes. 

A tenant must provide sufficient and accurate information to demonstrate the reduction of turnover of a business during the emergency period (or a relevant part).

This could include:

• sales reports from an accounting system;
• copies of business activity statements (BAS).

The parties cannot make onerous demands for information, for example:

• future cash flow projections;
• balance sheets, or profit and loss, or year to date financials;
• bank balance details or statements; and
• for financial information to be verified, audited or provided by a third party such as an accountant.

The clearer the information provided, the easier it is for the landlord and tenant to reach a rent relief agreement.  If the landlord makes a reasonable request for further information or clarification, the tenant should provide this extra information as soon as possible.;

If you have suffered the same level of loss used for the JobKeeper tests (30 per cent for businesses and 15 per cent for not-for-profits) then you are an eligible tenant, and can request rent relief under the Code.