Update to Landlords assessing claims for COVID-19 Rent Relief

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23 August 2022

A recent decision of the State Administrative Tribunal (SAT) has determined that a Landlord is not necessarily required to give 100% rent relief claimed by its Tenant under legislation responding to mandatory COVID closures.

The case: Jashan Technology Pty Ltd v Phoenix Properties International Pty Ltd [2022] WASAT 61

The Tenant operated a café and restaurant on St Georges Terrace. The café was forced to close in January 2021 due to the WA Government’s COVID mandate requiring such businesses to close.

The Tenant made a claim against the Landlord under the Regulations¹ for the waiver of 100% of the rent and outgoings for the mandatory closure periods, being 23 March to 18 May 2020, and 1 February to 5 February 2021. The total amount claimed was in excess of $200,000.

The Landlord opposed the claim because it had already provided rent relief proportionate to the reduction in the turnover for the café and restaurant, for the whole of the emergency period² (being 50% waived and 50% deferred) as well as other forms of relief before the emergency period.

The law

The decision turned on the SAT’s interpretation of clause 7(7) (a) of Schedule 1 to the Commercial Tenancies (Covid-19 Response) Regulations 2020 (WA) (Regulations). This clause provides that:

7. Principles applying to offering and negotiating rent relief

(7) An offer of rent relief must provide that more than 50% of the rent relief is to be in the form of a waiver of rent if —

(a) failure to provide more than 50% of the rent relief in the form of a waiver of rent would compromise the tenant’s capacity to fulfil the tenant’s ongoing obligations under the small commercial lease;³ and

(b) the landlord has the financial capacity to provide more than 50% of the rent relief in the form of a waiver of rent.⁴

In considering whether the failure to provide a waiver of more than 50% of rent ‘would compromise the tenant’s capacity to fulfil [its] ongoing obligations under the small commercial lease’ SAT determined that the Landlord was not limited to considering the Tenant’s capacity to pay at the time the application for rent relief was made. Instead, the Landlord could have regard to the capacity of the Tenant to satisfy its obligations under the Lease at any ‘indeterminable time in the future’. The Landlord was able to consider the following non-exhaustive matters in making its assessment:

1. the Tenant’s trading conditions and whether they are likely to get worse or improve;
2. the financial resources of the Tenant at the time of the request and what the financial resources will likely be when the deferred rent would become payable;
3. the profit margin the Tenant operates at and whether that is likely to get worse or improve;
4. the duration of the lease before expiry;
5. the financial obligations of the Tenant at the time of the request for rent relief and what those obligations will likely be when the deferred rent would become payable; and
6. the net asset position of the Tenant at the time of the request for rent relief and what the position will likely be when the deferred rent would become payable.

In conjunction with the above, SAT interpreted the Regulations’ overarching good faith clause (see schedule 1 division 1 clause 4) being the parties’ overarching obligation to act cooperatively, reasonably, transparently and in good faith to mean that the Tenant was required to provide sufficient information to the Landlord to assess the Tenant’s future capacity to fulfil its obligations under the Lease.

Importantly, SAT made clear that this is the case even having regard to clause 5(2)(c) of the Regulations which otherwise seeks to minimise the burden on the Tenant in respect of providing detailed financial information.

Take-away for Landlords

If Landlords are considering assessments for rent and outgoings relief under the Regulations, it is important that they look beyond the Tenant’s immediate capacity to satisfy its obligations under the Lease. It is the Tenant’s obligation to provide all documents needed to make this assessment.

Bennett can assist with any enquiries regarding issues raised in this article, or any other general tenancy questions. Please contact us at (08) 6316 2200.

This article was also co-authored by Andrew Filing.

For more information, please contact the authors:
Colette Davies | Principal Associate
Sinead Spencer | Solicitor

1. Note that the Tenant has otherwise satisfied the conditions for the claim to be assessed under the Regulations and was an ‘eligible tenant’ as defined under the Regulations.
2. Which ended on 26 March 2021 for more information see Commercial tenancies – COVID-19 response | Department of Mines, Industry Regulation and Safety (commerce.wa.gov.au)
3. Emphasis added.
4. It was not in dispute in this case that the Landlord had satisfied (7)(7)(b) of the Regulations.

Disclaimer: The information published in this article 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.