The WA State Government released the Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA Code) on 30 May 2020. The WA Code gives effect to the National Code of Conduct and introduces regulations under the Commercial Tenancies (COVID-19 Response) Act 2020 (WA), which was introduced in April 2020.
The WA Code provides clarity in relation to the nature of the relief that landlords and tenants may agree for commercial leases falling within the scope of the WA Code. The key features of the WA Code are as follows:
- The code applies to 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 during the emergency period (six months from 30 March 2020).
- The code outlines a process for tenants to request rent relief and 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.
Importantly, there is an acknowledgment that parties may have already proceeded to vary lease terms based on the National Code of Conduct or the principles outlined in the WA legislation released in April 2020. In these circumstances, the WA Code affords tenants the right to reopen variation terms where the agreed position was less favourable than that which would have been achieved applying the WA Code. Further, more than one variation is contemplated by the WA Code in circumstances where tenants face a further deterioration in trading outcomes following the agreement of an initial variation.
Requesting and agreeing rent relief
- A tenant under a small commercial lease who is an eligible tenant in relation to the small commercial lease may, during the emergency period (six months from 30 March 2020), request rent relief from the landlord under the small commercial lease.
- On receipt of an eligible request for rent relief from an eligible tenant, a landlord must offer rent relief to the eligible tenant within 14 days of receiving the request (or such other period agreed in writing).
- 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 that are the subject of the small commercial lease and the tenant has experienced during the emergency period.
- 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.
- Following receipt of the landlord’s offer of rent relief by the tenant, the landlord and the tenant must negotiate with a view to agreeing on rent relief to apply during the emergency period.
Payment of Deferred Rent
- The landlord must not request payment of any part of the deferred rent until the earlier of the day on which the emergency period ends and expiry of the term of the small commercial lease (before any extension to the term or otherwise).
- The landlord and the tenant must vary the 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.
- Subject to other terms of the WA Code, the landlord must offer the tenant an extension of the term of the small commercial lease on the same terms and conditions that applied under the small commercial lease immediately before the emergency period.
Interim agreements following 30 March and prior to the date of the WA Code / Further agreements under the WA Code
- The WA Code provides tenants with the right to re-open terms of a variation agreed following 30 March 2020 and prior to the introduction of the WA Code.
- If the tenant believes that the rent relief provided under the existing agreement is less favourable than rent relief that might be provided to the tenant in accordance with the WA Code the tenant may still make a request for rent relief under the WA Code.
- If the financial circumstances of an eligible tenant in relation to a small commercial lease materially change after a variation to the small commercial lease or an agreement has been reached the tenant may make a further request for rent relief to the landlord and the parties must again proceed in the manner prescribed by the WA Code.
Recovery of outgoings and expenses
- The landlord under the small commercial lease must consider waiving recovery of any outgoing or other expense payable by the tenant to the landlord under the small commercial lease for the part of the emergency period that the tenant is not able to conduct their business at the land or premises.
- The landlord may cease to provide, or reduce provision of, any service at the land or premises as is reasonable in the circumstances or in accordance with any reasonable request of the tenant.
We believe that the release of the WA Code is likely to provide parties with the certainty that had been awaited prior to negotiating and agreeing varied lease terms. It is important for landlords and tenants alike to understand the terms of the WA Code which will govern any variations and which when applied, may impose materially different commercial terms than those currently governing the terms of commercial leases falling within its scope.
Please contact Matthew Lenhoff on 08 6212 3777 should you require us to assist you with negotiating and documenting any variations to the terms of your lease in accordance with the WA Code.
Zafra Disclaimer: this article is intended to provide commentary and general information only. It should not be relied on as legal advice. Formal legal advice should be sought in the particular transaction or matters of interest arising from this article.