COVID-19 rent relief is ending - impacts to business

The emergency period under the Commercial Tenancies (COVID-19 Response) Act 2020 (WA) and its subsidiary legislation (the Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA)) (COVID Legislation) came to an end at midnight on 28 March 2021. This has the potential for significant impacts for business, including companies and their directors.

Background

On 24 March 2021, the Commercial Tenancies (COVID-19 Response) Amendment Regulations (No. 2) 2021 (WA) (Second Amending Act) was gazetted.

The Second Amending Act varied a few important timeframes set out in the COVID Legislation so that now, even though the emergency period is over, tenants still have until 27 May 2021 to:

  • make a request for rent relief from a landlord (in accordance with the provisions of the Code of Conduct set out in the COVID Legislation); and/or
  • make a request to the Small Business Development Corporation (SBDC) or an application to the State Administrative Tribunal (SAT) in relation to a dispute concerning to rent relief.

Therefore, a time imperative (albeit, delayed) still exists for the parties to a lease reaching an agreement in relation to any claim for rent relief.  If an agreement is not reached before 27 May 2021 in relation to a request for rent relief, the tenant should take alternative steps to enforce its rights as the right to refer any dispute to the SAT or the SBDC under the COVID Legislation will be lost after that date.

Under the COVID Legislation tenants have the right to apply to the SAT or make a request of the SBDC to seek resolution to a dispute in relation to rent relief.  However, if application to the SAT or referral to the SBDC has not been made by 27 May 2021, the SAT and the SBDC will no longer have jurisdiction to hear and determine disputes of this nature.

This means that after 27 May 2021 it would appear that for a tenant to seek to have a dispute in relation to a request for rent relief determined it would need to commence proceedings for a breach of the Code of Conduct (for example, the failure of a landlord to respond to a request for rent relief (either in time, or at all) or failing to negotiate reasonably and in good faith).  This evidentiary burden does not currently apply to referrals of disputes to the SAT or the SBDC under the COVID Legislation.

Proceedings in relation to a breach of the Code of Conduct should be able to be brought by a tenant of a “retail shop” in the SAT, as the SAT has jurisdiction to hear disputes in relation to questions arising under these leases in accordance with the provisions of the Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (Retail Shops Act). 

However, tenants of commercial leases (that is, leases to which the provisions of the Retail Shops Act do not apply) do not have a right to refer disputes to the SAT. This means tenants of commercial leases will need to commence Court action to enforce their rights under the Code of Conduct.  We imagine that the cost of such proceedings will prove prohibitive to many tenants who are seeking rent relief.

Therefore, we recommend that tenants seeking to make a claim for rent relief start the process, by making a request (in the form prescribed under the COVID Legislation) from the landlord, as soon as possible. 

In any event, this should be done well before 13 May 2021, as the landlord has 14 days to respond. Time should be allowed for an application to be made to the SAT or a request to the SBDC, if the landlord does not respond favourably, or fails to respond at all.

Lavan comment

This latest development has significant implications for restructuring practitioners and their clients (including companies and company directors). In particular:

  • It is vital that company directors seek to ensure that the company’s affairs with respect to any tenancies and any application for rent relief are in order as soon as possible to provide sufficient time to consider alternative options (including commencing legal proceedings).
  • Directors should carefully consider the financial position of the company in light of the end of the emergency period, with a particular focus on the interests of creditors (particularly if the solvency of the company is or may be in question).
  • If the company is or will be in financial distress, it is important to seek professional advice as expeditiously as possible in relation to a potential restructure or turnaround.

Please contact Lavan’s Recovery, Reconstruction and Insolvency team if you have any queries about the COVID Legislation and its implications on your business.