The WA Government has amended the Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA) (Regulations) and, by these amendments, the application of the Commercial Tenancies (COVID-19 Response) Act 2020 (WA) (Act).
For all practical purposes, the amendments apply as from 26 September 2020.
The key changes to the Regulations are:
The other changes are, largely, of a clarifying nature.
This update provides a guide as to the key changes that have been made to the Regulations and the application of the Act.
The emergency period is now 30 March 2020 to 28 March 2021.
While, at first blush, it may appear that the amendments to the Regulations are not significant, they must be read with the changes to the JobKeeper Scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (JobKeeper Rules) which come into effect on 1 October 2020. As a result of these changes, fewer tenants will be eligible for protection under the Act.
There are now three categories of eligible tenant:
First, for the period of 30 May 2020 to 27 September 2020, an eligible tenant is a tenant who:
Second, for the period of 28 September 2020 - 3 January 2021, an eligible tenant is a tenant who:
Third, for the period of 4 January 2021 – 28 March 2021, an eligible tenant is a tenant who:
This means that whether a tenant is an eligible tenant is reviewed on 28 September 2020 and 4 January 2021. If a tenant qualifies as an eligible tenant in the period 28 September 2020 – 3 January 2021, that tenant will be an eligible tenant from the date it meets the eligibility criteria until the end of that period.
That process is repeated for the period 4 January – 28 March 2021.
That does not mean that an eligible tenant is entitled to rent relief or to the same level of rent relief for the whole of the emergency period or even the whole of the relevant period as the rent can be adjusted on a monthly basis. However, the landlord will not be able to take a prohibited action against an eligible tenant during each new relevant period where it qualifies as an eligible tenant.
A “prohibited action” is any of the following:
This concept has not changed.
The circumstances in which a “prohibited action” is permitted have been expanded.
A landlord can take a “prohibited action” in respect of a tenant’s failure to pay rent or other monies payable under a “small commercial lease” in two situations:
A tenant is insolvent:
The situation may be complicated by the new insolvency laws currently being considered by the Commonwealth Government.
Each of the following criteria are met:
These criteria mean that the circumstances in which a prohibited action can be taken are quite limited. This is especially the case in relation to the criterion that the tenant has not made a request under the Code for rent relief in respect of unpaid rent to which the breach relates. On the face of it, the mere fact that such a request has been made by the tenant would prevent the landlord taking the prohibited action (though, we presume that the request must be a valid request which would give rise to an obligation on the landlord to respond).
A landlord can take a “prohibited action” where:
This change does not affect retail shop leases that are subject to the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA), as tenants in such shops cannot be compelled to be open for hours specified by the landlord.
Regulation 7(4) has been amended to provide that (unless agreed otherwise between the landlord and the tenant) rent relief provided to a tenant during the emergency period must be adjusted from time to time to take account of changes in the tenant’s turnover during the emergency period.
Such adjustments must be made not more frequently than monthly.
This clarifies an area of uncertainty that has existed between landlords and tenants with respect to the level of rent relief to be provided during the emergency period. A number of tenants and their advisers were of the view that if a tenant was an eligible tenant, the tenant was entitled to rent relief for the entire emergency period, regardless of positive changes in the tenant’s turnover position during the emergency period.
The amended regulation is consistent with the overarching obligations of reasonableness, good faith, openness, honesty and transparency imposed by section 4 of the Act.
Section 12 relates to incomplete/ongoing actions taken by the landlord during the original emergency period before the Act came into force (i.e. from 30 March 2020 to 24 April 2020).
Section 12 of the Act has been amended so that the stay on actions by a landlord during this period, cease to apply when:
1. if the tenant is insolvent:
2. the tenant is not an eligible tenant, on the date where, if any such action or enforcement of the lease terms was effected, that action/enforcement would not be prohibited by the Act.
The Commonwealth Government’s proposed changes to the insolvency laws may have an impact on the application of the amended section 12 of the Act.
Previously, rent could not be increased during the emergency period (section 11 of the Act) for any tenant under a “small commercial lease”. However, the rent may now be increased during the extended emergency period, if the tenant is not an eligible tenant when the rent is increased.
If a lease provides that a rent review may be implemented at any time, or that the landlord does not waive its right to review the rent if it does not do so by the relevant date, landlords should be entitled to implement a previous rent review when the tenant is no longer an eligible tenant or at the end of the emergency period. Despite this, the increased rent cannot apply to any period prior to the original emergency period or when the tenant is an eligible tenant.
Additionally, the stay or suspension of any rent increases implemented between 30 March 2020 to 24 April 2020 cease to apply, as and from:
Subject to limited exceptions, the Regulations previously provided that (unless agreed otherwise) in instances where rent was being deferred, landlords had to provide an extension of the tenant’s lease equivalent to the period for which the rent was deferred (Regulation 9(7)). This Regulation now provides that the period of the extension must (unless agreed otherwise) be “at least equivalent” to the period for which the rent is deferred.
If rent relief provided to a tenant ends before the expiration of the emergency period, the tenant can make a further request to the landlord for rent relief during the emergency period.
This is designed to deal with those rent relief arrangements that would specifically end by 29 September 2020.
Regulation 49(e) has been amended to provide examples of what will constitute onerous demands for information. The examples are:
The issue of what constitutes an onerous demand for information has been a contentious issue to date, the addition of these examples will assist in providing some guidance and clarity.
Please contact Lavan’s Property and Leasing team if you have any questions about the WA coronavirus legislation for commercial leases.