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New commercial tenancy legislative changes

Last updated: 29 May 2020

How commercial tenancy legislative changes affect you

So that we can best assist you, as either a tenant or a landlord, please watch the video and read all of this information before contacting us.

The WA Government has passed a new law to help commercial tenants and landlords reach agreements about rent during the COVID-19 pandemic.

The law was passed in two parts:

  • Part one: Commercial Tenancies (COVID-19 Response) Act 2020 (21 April 2020)
  • Part two: WA code of conduct (29 May 2020)

These two parts of the law work together to ensure businesses survive the economic downturn associated with the pandemic. They implement the key principles of a national code released by the National Cabinet in April.

They specify the actions small business tenants and landlords can take in regard to commercial tenancies during and following the crisis, and how they should negotiate an agreement.

Commercial Tenancies (COVID-19 Response) Act 2020

The Commercial Tenancies (COVID-19 Response) Act 2020 (the Act) was passed on 21 April 2020. The Act protects small business tenants from a range of prohibited actions, while they try to negotiate rent relief. They include:

  • a moratorium on evictions due to non-payment of rent
  • termination of the lease
  • rent increases (other than rent or a component of rent determined by reference to turnover)
  • penalties for tenants who do not trade or have reduced their trading hours
  • charging interest on rent arrears or any other unpaid amount of money (including operating expenses)
  • using bonds or guarantees to recover money owing
  • progressing with proceedings against a tenant for a breach that occurred after 30 March 2020, but before the new laws come into operation.

If a landlord has completed a prohibited action between 30 March and 23 April 2020 this will remain in place. However, if a landlord started a prohibited action between 30 March and 23 April 2020 and it has not been completed or is ongoing, this action should be suspended until the end of the emergency period.

WA code of conduct

On 29 May a new WA code of conduct (the code) became law.

The code, based on the national code released by the National Cabinet on 7 April, implements key principles for tenants and landlords to follow in order to negotiate rent relief for tenants suffering financial stress due to COVID-19.

All parties in a small commercial lease (landlords and tenants) must comply with the code to negotiate temporary variations to the lease, including rent relief, to address the impact of the COVID-19 pandemic.

All parties must follow these guidelines when negotiating rent relief:

  • cooperate
  • act reasonably and in good faith
  • act in an open, honest and transparent manner
  • provide each other with sufficient and accurate information for the purposes of the negotiations, and
  • not make onerous demands for information from each other.

The legislation applies during the emergency period 30 March 2020 to 29 September 2020 (unless this period is extended). Download this easy to understand summary of the legislation, what it means for tenants and landlords, and key dates.

Eligible leases

Small commercial leases include:

  • a retail shop lease as defined in the Commercial Tenancy (Retail Shops) Agreements Act 1985, or
  • a lease where the tenant is a small business as defined in the Small Business Development Corporation Act 1983, or
  • a lease where the tenant is an incorporated association as defined in the Associations Incorporation Act 2015, or
  • a lease prescribed by regulation.

Eligible tenants

A tenant is covered by the regulations if:

  • they occupy premises under a small commercial lease (as defined above)
  • have an annual turnover under $50 m in the financial year ending on 30 June 2019 (specific provisions apply for franchisees and corporations), and
  • if either:
    • they qualify for the JobKeeper scheme or
    • their turnover has reduced by 30 per cent.

How is the reduction in turnover calculated for the purpose of rent relief?

Unless otherwise agreed by the landlord and tenant, the reduction in turnover is calculated using the principles of the ‘decline in turnover test’ as set out in the JobKeeper scheme rules (including any relevant alternative decline in turnover test). Visit the ATO website for how to apply either the basic or alternative test.

Example of the eligibility test

Kaylee’s Kollectibles

In 2019 Kaylee’s Kollectibles had a turnover of $200k for the quarter 1 April – 30 June.

In 2020 Kaylee’s turnover had dropped to $150K for the quarter 1 April – 30 June.

  • $200k - $150k = a reduction of $50k in turnover
  • $50k is a 25% reduction in turnover ($50k ÷ $200k = 25%)
  • 25% is less than the 30% threshold - therefore Kaylee is not eligible

Bob’s Bites

In 2019 Bob’s Bites had a turnover of $200k for the quarter 1 April – 30 June.

In 2020 Bob’s turnover had dropped to $50k for the quarter 1 April – 30 June.

  • $200k - $50k = a reduction of $150k in turnover
  • $150k is a 75% reduction in turnover ($150k ÷ $200k = 75%)
  • 75% is greater than the 30% threshold - so Bob is eligible

If you have been trading for less than 12 months the ATO offers an alternative test to work out a change in turnover.

When a tenant requests rent relief they should provide the landlord with their turnover information.

Principles applying to offering and negotiating rent relief

The following principles apply to offers of rent relief and rent relief negotiations between a landlord and a tenant:

  • An offer of rent relief:
    • must apply to the emergency period
    • must be at least in proportion to the reduction in the tenant’s turnover (during the emergency period) for business conducted at the leased premises
    • may be for up to 100 per cent of the rent normally payable under the lease.

Waiver of rent

  • At least 50 per cent of the rent relief is to be in the form of a waiver (not required to be paid), unless the landlord and tenant otherwise agree in writing.
  • However more than 50 per cent should be offered if:
    1. not doing so would compromise the tenant’s capacity to fulfil their ongoing obligations under their lease; and
    2. the landlord has the financial capacity to waive more than 50 per cent of the rent.
  • The proportion of rent not waived may be deferred (paid at a later date).
  • If the landlord is a tenant under a lease themselves (the head lease) any rent relief they receive must be passed onto their tenant (the sub tenant).

Deferral of rent

For the proportion of rent relief which is deferred, unless agreed otherwise in writing:

  • The landlord must not request payment of any part of the deferred rent until the day the emergency period ends, or the term of the lease (or any extension) expires, whichever of these dates comes first.
  • A variation must be made to the written lease so that the tenant pays the deferred rent on an amortised basis. That means split over:
    • the balance of the term of the lease, or
    • a minimum period of 24 months (whichever is greater).
  • 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, unless agreed otherwise in writing.

An example of calculating rent relief

Using the example above:

Bob can demonstrate a decline in turnover of 75 per cent, this means he could seek rent relief of 75 per cent of the normal rent.

  • At least 50 per cent of this amount must be waived (Bob doesn’t have to pay it), and
  • the other 50 per cent must be deferred (Bob has to pay it later); or
  • Bob and his landlord could agree to waive more and defer less.

Putting it into numbers:

  • Bob’s normal rent is $2,000 per month.
  • With his decline in turnover of 75 per cent, Bob can apply for rent relief of $1,500 ($2,000 x 75%)

Of the $1,500 in rent relief, Bob can request:

  • $750 (50%) to be waived; he doesn’t need to pay at all
  • $750 (50%) to be deferred; he will pay back at a later date

However, Bob will still need to pay the portion of his rent that he is not entitled to receive relief on; $2,000 - $1,500 = $500

Steps for a tenant to negotiate rent relief

Step 1 – Prepare financial records

The landlord will need to see sufficient and accurate information to demonstrate the reduction in turnover of a business during COVID-19.

Examples of this could include:

  • information extracted from an accounting system
  • copies of your tax return or business activity statement (BAS)
  • documents provided by a financial institution or tax/accounting professional.

It is not necessary to provide information unrelated to establishing the decline in turnover, such as:

  • your current bank balance
  • balance sheets or profit and loss statements.

You should consider professional advice when preparing this information

Step 2 – Write to the landlord

You must make a request for rent relief to your landlord in writing, by letter or email. The following information should be included:

  • a statement that you and your lease are eligible as defined by the code of conduct 
  • sufficient and accurate information that shows:
    • you are an eligible tenant; and
    • the reduction in turnover during the emergency period.

Download an example letter

Step 3 – Reach agreement with the landlord

After receiving your request the landlord must:

After you receive the landlord’s offer, both parties should follow the principles, and negotiate an agreement on the rent relief to apply during the emergency period.

Step 4 – Documenting the agreement

If an agreement is reached, the detail of the rent relief should be recorded in a written variation to the lease, or another written agreement.

More information

Read a list of detailed FAQs for tenants and landlords.

Read our brief summary of the code of conduct.

For a link to the legislation and the full code, visit the Department of Mines, Industry Regulation and Safety visit the Department of Mines, Industry Regulation and Safety.

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