MCMILLAN INVESTMENTS (WA) PTY LTD and EDENSILK PTY LTD
[2020] WASAT 123
•14 OCTOBER 2020
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: COMMERCIAL TENANCIES (COVID-19 RESPONSE) REGULATIONS 2020 (WA)
CITATION: MCMILLAN INVESTMENTS (WA) PTY LTD and EDENSILK PTY LTD [2020] WASAT 123
MEMBER: MS L EDDY, SENIOR MEMBER
HEARD: DETERMINED ON THE DOCUMENTS
DELIVERED : 14 OCTOBER 2020
FILE NO/S: CC 715 of 2020
BETWEEN: MCMILLAN INVESTMENTS (WA) PTY LTD
Applicant
AND
EDENSILK PTY LTD
Respondent
Catchwords:
Commercial tenancy - Commercial tenancy (Covid-19 Response) Act - Tribunal's jurisdiction
Legislation:
Commercial Tenancies (COVID-19 Response) Act 2020 (WA), s 14(1), s 16, s 17, s 17(8)
Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA), Sch 1, cl 9, cl 17, Sch 2
State Administrative Tribunal Act 2004 (WA)
Result:
Tribunal has jurisdiction
Category: B
Representation:
Counsel:
| Applicant | : | N/A |
| Respondent | : | N/A |
Solicitors:
| Applicant | : | N/A |
| Respondent | : | Your Legal HQ |
Case(s) referred to in decision(s):
Nil
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
In June 2020, Mr Lindsay McMillan, on behalf of McMillan Investments (WA) Pty Ltd (applicant or McMillan) applied to the Tribunal under the Commercial Tenancies (COVID-19 Response) Act 2020 (WA) (COVID-19 Act) seeking determination of a rent relief dispute. In particular, Mr McMillan claims that the landlord, Edensilk Pty Ltd (respondent or Edensilk) offered deferral of rent and an extension of the lease, as part of a rent relief offer, that was not consistent with the requirements of the Code of Conduct prescribed by the Commercial Tenancies (COVID-19) Response Regulations 2020 (WA) (COVID-19 Regulations).
Following directions hearings held on 27 July 2020 and 6 August 2020, an unsuccessful attempt to mediate the dispute between the parties occurred on 12 August 2020. The matter was thereafter listed for a directions hearing on 15 September 2020. At that directions hearing, the respondent's representative asserted that the Tribunal did not have any jurisdiction to hear and determine McMillan's complaint because, as of 1 September 2020, the lease between Edensilk and McMillan had expired. The respondent alleges that McMillan is no longer party to any lease under which any Code of Conduct dispute can arise, and is therefore not a 'tenant' within the meaning of the COVID19 Regulations. The applicant asserts that it is still occupying the lease premises and that at the time the application before the Tribunal was lodged, the tenancy was still in existence. McMillan asserts that the lease has not effectively expired or been terminated because of the operation of the COVID-19 Regulations to the circumstances.
The Tribunal ordered that the parties lodge and exchange written submissions on the question by 29 September 2020 and listed the matter for the delivery of a decision in chambers on the jurisdictional issue on 16 October 2020.
For the reasons which follow, the decision of the Tribunal is that the Tribunal does have jurisdiction to hear this matter.
Submissions of the parties
Edensilk asserts, and McMillan does not dispute, the following relevant facts in relation to the lease; submission lodged on behalf of respondent on 30 September 2020; Respondent's submissions at paras 6 to 8:
6.The Landlord and the Tenant entered into a Lease of Unit 24, 515 Walter Road East, Morley, for a period of 2 years, with an option for 2 years, which commenced, pursuant to Item 6 of Schedule 1 of the Lease, on either 18th February 2016, or one day after the sale of the business Comspark from the Lessor to the Lessee, whichever is the later (Lease).
7.The sale of Comspark settled on 1st March 2016 with the effect that the commencement date of the Lease was 2nd March 2016.
8.The 2 year option was exercised by the Tenant, bringing the Lease to 1st March 2020, and in January 2020, by mutual consent the Lease was extended for a period of 6 months, from 2nd March 2020 to 1 September 2020 (Lease Extension), and the rent was reduced by $10,000 p.a pro rata at the Tenant's request.
It is also not in dispute that the parties reached agreement about the appropriate rent relief to be applied, except in relation to the period over which rent which was to be deferred and consequently the period of extension of the lease that must be offered by the landlord pursuant to the agreed deferral of rent.
The applicant submits the respondent was required to offer deferral of rent, and consequently an extension for the lease, for a period of not less than 24 months. McMillan relies on cl 9 of Sch 2 of the COVID-19 Regulations which provides:
(1)This clause applies if rent payable under a small commercial lease is deferred by variation to the small commercial lease or an agreement referred to in clause 8.
(2)The landlord must not request payment of any part of the deferred rent until the earlier of the following -
(a)the day on which the emergency period ends;
(b)expiry of the term of the small commercial lease (before any extension to the term under subclause (6) or otherwise).
(3)The landlord and the tenant must vary the small commercial lease, or otherwise agree, so that the tenant must pay the deferred rent to the landlord amortised over the greater of the following -
(a)the balance of the term of the small commercial lease;
(b)a period of not less than 24 months.
(4)The method by which the deferred rent is amortised for the purposes of subclause (3) is to be agreed by the landlord and the tenant.
(5)Subclauses (2) and (3) do not apply if the landlord and the tenant agree otherwise in writing.
(6)Subject to subclause (8), the landlord must offer the tenant an extension of the term of the small commercial lease on the same terms and conditions that applied under the small commercial lease immediately before the emergency period.
(7)The extension offered under subclause (6) must be at least equivalent to the period for which the rent is deferred, unless the landlord and the tenant agree otherwise in writing.
Example for this subclause:
If the landlord has granted the tenant a 6-month deferral of rent, the extension offered must be at least 6 months.
(8)Subclause (6) does not apply if -
(a)the landlord is the tenant under a lease (the head lease) of the land or premises that are the subject of the small commercial lease and the extension would be inconsistent with the head lease; or
(b)the extension would be inconsistent with any contract or other agreement already entered into by the landlord with another person (other than the tenant) that relates to the land or premises that are the subject of the lease (including an agreement to lease the land or premises to the other person).
Section 17 of the COVID-19 Act provides for the Tribunal's powers to make orders under that legislation. It provides:
(1)In this section -
specified, in relation to an order, means specified in the order.
(2)Without limiting any power to make an order that is conferred by the State Administrative Tribunal Act 2004, in proceedings under this Act the Tribunal may make any order that it considers appropriate to resolve the dispute or proceedings.
(3)Without limitation, the orders that can be made by the Tribunal include the following -
(a)an order that requires a party to the proceedings to pay money to a specified person;
(b)an order for a party to the proceedings to do, or refrain from doing, any specified thing;
(c)if the proceedings relate to a code of conduct dispute -any order that the Tribunal considers appropriate to give effect to the approved code of conduct including, without limitation, 1 or both of the following -
(i)an order that a specified amount of rent payable under the lease to which the dispute relates be waived for a specified period;
(ii)an order that a specified amount of rent payable under the lease to which the dispute relates be deferred and paid in a specified timeframe;
(d)if the proceedings relate to a financial hardship dispute - an order terminating the small commercial lease;
(e)an order dismissing the proceedings;
(f)any ancillary order that the Tribunal considers necessary for the purpose of enabling an order under this section to have full effect.
(4)In making an order in proceedings under this Act relating to a code of conduct dispute, the Tribunal must have regard to -
(a)the financial impact of the COVID-19 pandemic on the tenant's business and capacity to meet the tenant's obligations under the lease; and
(b)the landlord's financial capacity; and
(c)the principles of proportionality and fairness, and any other relevant principles, set out in the adopted code of conduct.
(5)In proceedings relating to a financial hardship dispute, the Tribunal -
(a)cannot make an order under subsection (3)(d), or any other order to the disadvantage of the tenant, unless satisfied that the tenant's breach was not a result of the tenant suffering financial hardship; and
(b)must make an order under subsection (3)(e) if satisfied that the tenant's breach was a result of the tenant suffering financial hardship.
(6)In making an order in any proceedings under this Act, including an order under the State Administrative Tribunal Act 2004 section 87(2), the Tribunal may have regard to a certificate issued under section 19 that relates to the proceedings.
(7)An order of the Tribunal requiring any thing to be done or discontinued may fix the time within which that thing is to be done or discontinued, as the case may be.
(8)In proceedings under this Act, the Tribunal may allow any equitable claim or defence, and give any equitable remedy, that the Supreme Court may allow or give.
The applicant further relies on s 5 and s 6 of the COVID-19 Act; which provide as follows:
5.Application
This Act has effect despite anything to the contrary in any written law.
6.Leases, contracts and agreements taken to be modified
The provisions of any lease or any other contract or agreement are taken to be modified to the extent necessary to give effect to the operation of this Act.
The basis of the applicant's argument is somewhat difficult to with any precision. Doing the best that I can to bring together the threads of the applicant's submission it seems to me that McMillan makes the following submission. The respondent has failed to comply with the Code of Conduct contained in Sch 1 of the COVID-19 Regulations, in that it has not cooperated, acted reasonably and in good faith and in an open, honest and transparent manner. The applicant asserts that the respondent has attempted to impose its views as to the proper interpretation of the COVID-19 Regulations and has refused to negotiate having regard to the applicant's interpretation of the relevant provisions. Therefore, the Tribunal should find that McMillan continues to occupy the premises lawfully (it does not specify the nature of that lawful occupation) on the basis that the purpose of the COVID-19 Regulations, and the obligation to negotiate in relation to rent relief in the manner specified in the regulations would otherwise be frustrated.
The respondent alleges that the lease expired, without any further agreement to extend the lease, on 1 September 2020.
Edensilk accepts that McMillan may be 'holding over' if it legally occupies the premises, absent a contract of lease. However, Edensilk submits that the lease does not encompass holding over arrangements, and/or any tenancy at will, and even if it did, any such arrangement would have to be made with the landlord's consent. Edensilk says that it has not consented to any holding over and/or tenancy at will arrangement. The respondent further submits that there has been no tacit consent by the landlord to any holding over or tenancy at will by the applicant.
Edensilk submits that; respondent's submissions at para 24:
The Landlord submits that current occupation of the premises, either by trespass, or at best a tenancy at sufferance does not constitute a 'lease' within the meaning of s3 of the [Commercial Tenancies (COVID-19) Response] Act. It follows that if there is no 'lease' then the Tenant is not a tenant within the meaning of s3 of the Act either and that there is no 'dispute' within the meaning of s14 (1) which activates the Tribunal's jurisdiction under s16 of the Act.
The respondent further submits that the extension of the lease which it was required to offer, in accordance with the period for which rent is deferred, was not a minimum of 24 months, as alleged by McMillan. The respondent submits that cl 7 of the COVID-19 Regulations specifies that rent relief is to apply during the emergency period. On this basis, the period (of deferral of rent and therefore of extension of the lease) which the landlord is required to offer is to the end of the emergency period.
Edensilk offered an extension of the lease of six months, which was approximately five months longer than the end of the emergency period, which at that point in time was 28 September 2020. This shows, the respondent submits, that the respondent did comply with the requirements in the COVID-19 Regulations to negotiate in good faith, etcetera. The applicant did not accept this offer of extension of the lease prior to the expiry of the lease. Therefore the lease expired, through no fault of Edensilk and with no failure by Edensilk to comply with the Code of Conduct in good faith.
Disposition
Pursuant to s 16 of the COVID-19 Act, a party to a dispute may apply to the Tribunal to have the dispute determined by the Tribunal. In s 14(1) of the COVID-19 Act:
code of conduct dispute means a dispute that arises out of, or in relation to, the application of the adopted code of conduct in relation to a lease (including, without limitation, a dispute about the waiver or deferral of rent payable under a lease);
…
dispute -
(a)means a dispute between the parties to a lease, or 1 or more parties to a lease and a person who has given a guarantee in respect of the lease, that arises out of, or in relation to, the operation of this Act; and
(b)includes -
(i)a code of conduct dispute; and
(ii)a financial hardship dispute[.]
Prior to the lodgement of the application in the Tribunal, McMillan and Edensilk had commenced negotiations about rent relief in accordance with the COVID-19 Regulations. McMillan lodged the application in the Tribunal on the basis that it alleges that there was a code of conduct dispute because the parties could not agree on the period of deferral due to their differing views about how the COVID-19 Regulations should be interpreted. I am satisfied that there was a code of conduct dispute, that is, a dispute arising out of, or in relation to, the application of the code of conduct to a lease; in particular a dispute about the deferral for rent payable under the lease.
At the time the application was lodged, McMillan was a party to a code of conduct dispute. As such he was a person who was able to apply to the Tribunal to have the dispute determined under s 16 of the COVID-19 Act.
The application was lodged in accordance with the enabling legislation and therefore the Tribunal has the jurisdiction to determine the matter in accordance with the enabling legislation and relevant provisions of the State Administrative Tribunal Act 2004 (WA).
This does not mean that there does not remain questions as to what powers the Tribunal may exercise and how they might be exercised in circumstances where it is alleged that there is no longer any lease in place. However, it is not appropriate to deal with these questions on a preliminary basis. These questions are likely to involve the determination of a number of facts that appear to be in dispute between the parties. They also potentially raise questions as to the how the powers of the Tribunal might be able to be exercised in all the circumstances, including the power in s 17(8) of the COVID-19 Act.
Orders
1.The Tribunal has jurisdiction to determine the application pursuant to s 16 of the Commercial Tenancies (COVID-19 Response) Act 2020 (WA) lodged by McMillan Investments (WA) Pty Ltd as a party to a code of conduct dispute.
2.The matter is listed for a directions hearing on 16 October 2020 at 10 am.
I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
MS L EDDY, SENIOR MEMBER
14 OCTOBER 2020
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