COVID-19 – Commercial Tenancies Update – The New Commercial Tenancies (COVID-19 Response) Bill 2020 (WA) (20 April 2020)


Commercial Tenancies (COVID-19 Response) Bill 2020 (WA)

The Commercial Tenancies (COVID-19 Response) Bill 2020 (Bill) was introduced into WA Parliament on Thursday, 16 April 2020 and was passed by the Legislative Council with various amendments on 17 April 2020.

The Bill has been introduced as a result of the National Cabinet’s code of conduct for commercial tenancies as announced on 7 April 2020 (National Code), and responds to the impact of the COVID-19 pandemic on certain commercial leases.

The Bill introduces various measures to provide for urgent relief for some commercial tenants and in particular, the Bill provides for immediate prohibited actions in respect of small commercial leases.

This article serves as an update to our previous COVID-19 updates on commercial tenancies  (which has been a rapidly changing issue over the past couple of weeks), and is a summary of what the new Bill makes provision for in WA.

Which commercial leases does the Bill apply to?

The Bill applies to a “small commercial lease” (SCL) in WA, which is defined as:

  • 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.

A “small business” has the same meaning as defined in the Small Business Development Corporation Act 1983, and includes a business undertaking which is wholly owned and operated by an individual person or by individual persons in partnership or by a proprietary company and which:

(a) has a relatively small share of the market in which it competes; and

(b) is managed personally by the owner or owners or directors, as the case requires; and

(c) is not a subsidiary of, or does not form part of, a larger business or enterprise.

The Bill does not contain any reference to the same eligibility criteria as referred to in the National Code, being that the tenant must be an eligible business for the purposes of the JobKeeper program, and must be an SME with an annual turnover of no more than $50million.

How long will the Bill apply for?

Those parts of the Bill relating to ‘prohibited actions’ will be enforced retrospectively from 30 March 2020, and apply for the emergency period.

The remainder of the Bill will come into force the day after Royal Assent is granted in due course, and will apply for the emergency period.

The ‘emergency period’ – as defined in the Bill, will end on either:

  • a day to be prescribed by regulation; or
  • if no date is prescribed, then 29 September 2020.

What does the Bill provide for?

The Bill makes provisions relating to SCL’s, including:

  1. Prohibited Actions

Except in circumstances as might be prescribed by regulations in due course, a landlord cannot take a prohibited action on the grounds of a breach by a tenant of an SCL that occurs during the emergency period (commencing as from 30 March 2020), if the breach is:

  • A failure to pay rent or any other monies payable by the tenant; or
  • The land or premises, or the business carried on there, are not open for business at hours or times specified in the SCL; or
  • Any other act or omission of a kind prescribed by regulations.

A ‘prohibited action’ by a landlord against a tenant in respect of an SCL includes:

  • eviction of the tenant;
  • exercising a right of re-entry to the land or premises;
  • taking possession;
  • recovery of land;
  • distraint of goods;
  • forfeiture;
  • terminating of the SCL;
  • claiming damages;
  • requiring the payment of interest on unpaid rent or other moneys;
  • making a claim on the whole or any part of any security for the performance of the tenant’s obligations (including a security bond);
  • seeking performance of obligations by the tenant or any other person under a guarantee (including making any demand on a bank guarantee);
  • any other remedy otherwise available to the landlord against the tenant at common law or under a written law.

The Bill also provides that rent increases (other than rent or a component or rent determined by reference to turnover) cannot be increased during the emergency period.

If a landlord has taken or commenced any ‘prohibited action’ against a tenant of an SCL during the period commencing on 30 March 2020 and ending on the day on which the Bill receives Royal Assent, that prohibited action, in so far as it is incomplete or ongoing, is taken to be stayed or suspended until the end of the emergency period. This includes a rent review- the increase in rent is stayed or suspended until the end of the emergency period.

The provisions of any commercial leases are taken to be modified to the extent necessary to give effect to the Bill, and parties are not entitled to contract out of the operation of this Bill.

  1. Code of Conduct

Part 4 of the Bill proposes the adoption of a code of conduct for landlords and tenants under certain commercial leases, by way of regulations.

It is intended that the WA code, like the National code of conduct, will provide for a set of principles to guide a negotiating environment for landlords and tenants in relation to rent relief.

During the readings of the Bill in Parliament, it was indicated that:

  • WA did not intend to adopt the National Code;
  • WA will prepare its own code, using the National Code as a guide;
  • The proposed code for WA has the capacity to apply to a different defined class of ‘commercial leases’ than those referred to in either the Bill or in the National Code;
  • It will be approximately 4 weeks before the WA code is introduced into Parliament;
  • The Government is in discussions with stakeholders, for input regarding what is fair and proper as to who the WA code will apply to – which will then be debated and determined in due course.

There remains uncertainty for commercial landlords and tenants as to what is required in relation to any rent relief negotiations, until WA adopts its own code under regulations. Although landlords and tenants are encouraged to get together and negotiate in good faith, there is still no ‘law’ in WA regarding any principles for rent relief. There are many unknowns about how the leasing principles outlined in the National Code will apply in WA.

In the meantime, the Bill provides a baseline of protections (‘prohibited actions’) for tenants of an SCL.  For any rent relief discussions, parties should use the National Code as a guide for the time being, but bear in mind that this is not law in WA. WA will implement its own code in about a month’s time, which may have different principles and applicability.

  1. Dispute Resolution Process

Part 5 of the Bill establishes a dispute resolution process for certain disputes that arise out of, or in relation to, the operation of the Bill or the application of the adopted code of conduct.

Parties must first attempt resolution between themselves, then seek resolution by the Small Business Commissioner and where those options fail or are inappropriate, then the Bill allows for parties to apply to the State Administrative Tribunal.

The dispute process also allows for landlords to apply to SAT to terminate leases where tenants who are not experiencing financial hardship, refuse to pay rent and do not have any agreed rent deferrals or waivers in place.

What happens now with the Bill?

The Bill (with amendments) was accepted and passed by the Legislative Council on 17 April 2020 and will now be presented to the Governor for Royal Assent. Once assented to, the Bill will be in force with Parts 2 and 3 applying retrospectively from 30 March 2020.

As stated above, no regulations (or code for WA) have been drafted or released by WA Parliament as at the date of this update.

What should landlords and tenants of commercial tenancies take-away from this?

  1. Determine if your lease is a ‘small commercial lease’ as defined in the Bill, and if so, note that there are now various prohibited actions which will apply retrospectively as from 30 March 2020 (once the Bill receives Royal Assent);
  2. WA will implement its own code of principles for guiding rent relief negotiations in about a month’s time. The WA code may apply to different leases/tenants, and may contain different principles for rent relief, than the National Code.

In the interim, while the WA code of conduct is still under construction, the WA Government has recommended that parties are encouraged to explore solutions for rent relief using the principles contained in the National Code as a guide. We suggest you do this if the National Code of conduct applies to your commercial lease (ie if the tenant is eligible for the JobKeeper program and has an annual turnover of less than $50million).

Landlords and tenants should bear in mind that although the National Code can be used as a guide, the National Code is not law in WA. Any rent relief arrangements agreed to may subsequently be impacted by the WA code, once the WA code is adopted by the proposed regulations.

Any rent relief communications and negotiations should be made on a without prejudice and confidential basis, and be subject to the adoption of a code in WA by way of the proposed regulations.

  1. Once the Bill comes into force, all agreements that fall under the new Act will be taken to be modified to the extent necessary, to give effect to the operation of the Act; and parties are not able to contract out of the new Act.

We will provide further updates regarding the WA code of conduct once it has been drafted and presented to Parliament.

Commercial Tenancies (COVID-19 (Early Terminations) Bill 2020 (WA)

The Commercial Tenancies (COVID-19 (Early Terminations) Bill 2020 was also introduced into WA Parliament on Thursday, 16 April 2020.

This second bill (if passed) would allow tenants to terminate leases at no cost, if they are severely impacted by the pandemic and if they are unable to reach agreement with landlords on lease and rental relief.

Such a power to terminate commercial leases was considered by the National Cabinet in early drafts of the National Code, and was rejected at Federal Government level.

There is significant opposition to this proposed bill.  As at the time of issuing this update, this bill is currently under debate in the Legislative Assembly and amendments have been proposed.

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.

Should you have any queries or require advice on your lease, please do not hesitate to contact:

Emma Leys – Partner – eleys@kottgunn.com.au

Greg Mohen – Partner – gmohen@kottgunn.com.au

Claire Hawke-Gundill – Partner – chawke-gundill@kottgunn.com.au

John Park – Partner – jpark@kottgunn.com.au