The WA Government has now finalized the Commercial Tenancies Code of Conduct for WA by gazetting it in the Commercial Tenancies (COVID-19 Response) Regulations 2020 (the Code).
The Code comes into effect from 30 May 2020 and complements the Commercial Tenancies (COVID-19 Response) Act 2020 (the Act).
Some key points of the Code are:
Who does the Code apply to?
The Code applies to landlords and tenants who under a relevant small commercial lease.
A relevant small commercial lease is a small commercial lease where the tenant is an eligible tenant.
A small commercial lease is:
- a retail shop lease, as defined in the Commercial Tenancy (Retail Shops) Agreements Act 1985; or
- a lease where the tenant owns or operates a small business and uses the land or premises that are the subject of the lease for the purpose of carrying on that business; or
- a lease where the tenant is an incorporated association as defined in the Associations Incorporation Act 2015; or
- any other lease that is of a class prescribed by regulations for the purpose of this definition.
For a tenant to be an eligible tenant under the Code, they must:
- be a tenant of a small commercial lease; AND
- have a turnover of less than $50 million for the financial year ended 30 June 2019; AND
- qualify for the JobKeeper scheme, OR
- be able to prove a 30% reduction in turnover due to the pandemic.
Overarching obligations of landlords and tenants
In any negotiations, the landlord and tenant must:
- act reasonably and in good faith;
- act in an open, honest and transparent manner;
- provide each other with sufficient and accurate information, reasonable for the purposes of the negotiations; and
- not make onerous demands for information from each other.
Requests for rent relief and information
The tenant can request for rental relief but must provide sufficient and accurate information which proves that the tenant is eligible under the Code and provide evidence of their reduction in turnover.
Offering and negotiating rent relief
Upon receipt of a request for rent relief, landlords have 14 days to make a rent relief offer to the tenant (or such other period as agreed between the parties).
Principles to apply to offering and negotiating rent relief
- An offer or rent relief must apply to the emergency period (29 March 2020 to 29 September 2020).
- The rent relief must be at least proportionate to the tenant’s reduction in turnover.
- Unless otherwise agreed by the parties, the reduction in tenant’s turnover is to be calculated using the principles of the decline in turnover test set out in the JobKeeper scheme.
- At least 50% of rent relief offered must be in the form of a waiver or rent, unless otherwise agreed by the parties.
- An offer of rent relief must provide for more than 50% of the rent relief to be in the form of a waiver of rent, in certain situations detailed in the Code (but only if the landlord has the financial capacity to do so).
Payment of deferred rent and extension of term of lease
Unless otherwise agreed by the parties in writing:
- the landlord must not request payment of any part of deferred rent until the earlier of: the day on which the emergency period ends (currently 29 September 2020); or expiry of the term of the lease.
- the parties must vary the lease, or otherwise agree, that the deferred rent is to be paid amortised over the greater of: the balance of the term of the lease; or a period of not less than 24 months.
- the method for amortisation is to be agreed between the parties.
- except in certain circumstances as provided for in the Code, the landlord must also offer the tenant an extension of the term of the lease (on the same terms as the existing lease), for a period equivalent to the period for which the rent is deferred.