What you Need to Know About the New Commercial Tenancy Legislative Changes
The state government recently approved a new law to help commercial tenants and landlords better reach agreements about renting during the COVID-19 pandemic.
The law was introduced in two parts:
- Commercial tenancies (COVID-19 response) Act 2020, (21st April 2020)
- WA code of conduct (29th May 2020)
Commercial Tenancies (COVID-19 Response) Act 2020
This act was introduced to safeguard small business tenants from a range of prohibited acts, while they attempt to negotiate rent relief. They include:
- A moratorium on eviction due to non-payment of rent
- Termination of a lease
- Rent increases
- Penalties for tenants who do not trade or who have reduced their hours of trading
- Charging interest on rent arrears
- Using bonds or guarantees to recover money owed
WA Code of Conduct
This code implements key principals for tenants and landlords to follow when discussing rent relief for tenants suffering financial stress due to COVID-19.
All parties must follow these regulations when discussing rent relief:
- Act rationally and in good faith
- Act in an open, truthful manner
- Provide each other with sufficient and correct information
Small commercial leases include:
- A retail shop
- A lease where the tenant is a small business
- A lease where the tenant is an incorporated association
- A lease prescribed by regulation
A tenant will be covered if:
- They occupy premises under a small commercial lease
- Have an annual turnover under $50 million
- They qualify for the JobKeeper scheme or their turnover has reduced by 30%
How is the Reduction in Turnover Calculated for the Purpose of Rent Relief?
The reduction in turnover is assessed using the principles of the ‘decline in turnover test’ as explained in the JobKeeper program regulations. Visit the ATO website for information on how to apply.
Principles Applying to Offering and Negotiating Rent Relief
The following rules apply to rent relief agreements and discussions between the landlord and tenant:
- The offer must apply to the emergency period
- The offer must be in proportion to the reduction in the tenants turnover
- The offer may be up to 100% of the rent typically payable under the lease.
Waiver of Rent
- At least 50% of the rent relief must be in the form of a waiver
- More than 50% should be offered if:
- The landlord has the financial to waive more than 50%
- The tenants capacity to fulfill their ongoing obligations is compromised
- The proportion of rent not waived may be deferred
- If the landlord is a tenant under a lease themselves, any rent relief they receive must be passed onto their subtenant.
Deferral of Rent
For the proportion of rent relief, which is deferred, unless otherwise agreed in writing:
- The landlord cannot require payment of any part of the deferred rent until the emergency period ends, or the term of the lease expires, whichever comes first.
- A variation must be made to the written lease so that the tenant pays the deferred rent on an amortised basis.
- If the lease is extended to allow for the payment of deferred rent, it must be offered to the tenant on the same terms and conditions that applied immediately before the emergency period.
At Kensington’s, we understand the complexities of tax legislation, small to medium business accounting, taxation, and auditing. We are able to guide you through the financial and legal intricacies associated with these areas. To find out more about these new commercial tenancy legislative changes, or to talk to one of our experienced accountants, contact us today.