PALMART PTY LTD and PALINA HOLDINGS PTY LTD
[2022] WASAT 20
•11 MARCH 2022
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL
ACT: COMMERCIAL TENANCIES (COVID-19 RESPONSE) ACT 2020 (WA)
CITATION: PALMART PTY LTD and PALINA HOLDINGS PTY LTD [2022] WASAT 20
MEMBER: MS C BARTON, MEMBER
HEARD: 2 DECEMBER 2021
DELIVERED : 11 MARCH 2022
FILE NO/S: CC 1405 of 2021
BETWEEN: PALMART PTY LTD
Applicant
AND
PALINA HOLDINGS PTY LTD
First Respondent
GEORGE STOICHE
Second Respondent
Catchwords:
Retail shops - Commercial tenancies - COVID-19 pandemic - Small commercial lease - Relief sought by tenant - Application for rent relief - Waiver of rent - Deferred rent - Code of conduct dispute - Emergency period - Whether eligible tenant - Jobkeeper - Decline in turnover - Unpaid rent and outgoings - Business activity statements - Sufficient and accurate information - Principles of proportionality
Legislation:
Commercial Tenancies (COVID-19 Response) Act 2020 (WA), s 3, s 8, s 9, s 14(1), s 14(2), s 16(1), s 16(2), s 16(3)(a), s 16(4), s 17, s 17(2), s 17(3), s 17(3)(c), s 17(3)(d), s 17(4), s 18, s 19, s 19(1)
Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA), reg 2B, reg 2D, reg 4AA(3), reg 4D(2), Sch 1, cl 2, cl 2(1)(a)(iii), cl 2(1A)(a), cl 2(1B)(a), cl 2(1C)(c), cl 4, cl 5, cl 7, cl 7(3A), cl 7(6), cl 9(2), cl 12
Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth), s 6, s 7, s 8, s 8(7)
Small Business Development Corporation Act 1983 (WA), s 3(1)
State Administrative Tribunal Act 2004 (WA), s 15(1), s 16(1), s 16(2)
Result:
Allowed in part
Category: B
Representation:
Counsel:
| Applicant | : | Mr D Martin (Director) |
| First Respondent | : | Mr A Zorotovic |
| Second Respondent | : | Mr A Zorotovic |
Solicitors:
| Applicant | : | N/A |
| First Respondent | : | Frichot Lawyers |
| Second Respondent | : | Frichot Lawyers |
Case(s) referred to in decision(s):
Nil
REASONS FOR DECISION OF THE TRIBUNAL:
Introduction
Palmart Pty Ltd (applicant) is the tenant of premises at Unit 1, 7 Cobbler Place, Mirrabooka (premises). On 1 March 2018, the applicant entered into a lease with Palina Holdings Pty Ltd and Mr George Stoiche as landlords (respondents) in relation to the premises (Lease).
On 1 September 2021, the applicant applied to the Tribunal under s 16(1) of the Commercial Tenancies (COVID-19 Response) Act 2020 (WA) (COVID Response Act) seeking an order that it not pay any deferred rent in respect of the emergency period, being the period commencing on 30 March 2020 and ending on 28 March 2021 (emergency period). In effect, the applicant seeks that any rent relief granted to it by the Tribunal for the emergency period be entirely in the form of a waiver of rent. The applicant seeks a number of other orders from the Tribunal which relate to matters that occurred outside the emergency period, including in respect of default notices served on the applicant by the respondents in July 2017 and May 2021.
To be granted rent relief, the applicant must establish that it is an 'eligible tenant' under cl 2 of the Code of Conduct in Sch 1 to the Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA) (Code).
For the reasons that follow, I conclude that the applicant is an 'eligible tenant' and that of the rent payable under the Lease for the emergency period the applicant is entitled to rent relief in the sum of $61,131.94 (incl GST) with 50% waived and 50% deferred.
The Tribunal's jurisdiction
Section 16(1) of the COVID Response Act provides that a party to a dispute may apply to the Tribunal to have the dispute determined. The term 'dispute' is defined in s 14(1) of the COVID Response Act to mean, amongst other things, a dispute between the parties to a lease that arises out of, or in relation to, the operation of the COVID Response Act. It includes a 'code of conduct dispute' and a 'financial hardship dispute'.
The parties agreed, and I find, that there is a 'code of conduct dispute' between the applicant and the respondents because it is a dispute that arises out of, or in relation to, the application of the Code to the Lease, including a dispute about the waiver or deferral of rent payable under the Lease during the emergency period.[1]
[1] See definition of 'code of conduct dispute' in s 14(1), COVID Response Act.
It is the applicant's contention that the dispute is also a 'financial hardship dispute' as defined in s 14(2) of the COVID Response Act.[2] I am not persuaded that it is a financial hardship dispute because the respondents have not claimed that any breach of the Lease was not a result of the applicant suffering financial hardship.[3] Also, neither the applicant nor the respondents seek an order terminating the Lease due to financial hardship under s 17(3)(d) of the COVID Response Act.[4]
[2] ts 131, 2 December 2021.
[3] ts 127, 2 December 2021.
[4] ts 132, 2 December 2021.
Section 16(2) of the COVID Response Act conditions or limits the entitlement in s 16(1) of the COVID Response Act by requiring that an application to determine a dispute must be made to the Tribunal no later than the 60th day after the day on which the emergency period ends unless the Small Business Commissioner (Commissioner) has issued a certificate under s 19(1) of the COVID Response Act in respect of the dispute.[5]
[5] See reg 4D(2), Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA).
The emergency period commenced on 30 March 2020 and ended on 28 March 2021.[6] The Commissioner issued a certificate under s 19(1) of the COVID Response Act on 17 August 2021 (s 19 certificate).[7] Notwithstanding the applicant filed its application with the Tribunal on 1 September 2021, which was outside the emergency period, I am satisfied that the application was made in accordance with s 16(2) of the COVID Response Act because the Commissioner issued a s 19 certificate.
[6] Section 3, COVID Response Act and reg 2B, Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA).
[7] Statement of Paul Alexander Samuels dated 18 November 2021, para 28, PAS17; Mr Samuels is the property manager engaged by the respondent to manage the premises.
Sections 16(3) and 16(4) of the COVID Response Act provides, amongst other things, that an application cannot be made to the Tribunal in respect of a dispute concerning a 'small commercial lease'[8] unless none of the parties to the dispute has made a request to the Commissioner under s 18 of the COVID Response Act in respect of the dispute and the parties agree that the application can be made, or the Commissioner has issued a certificate in respect of the dispute under s 19 of the COVID Response Act. I find that the Lease is a 'small commercial lease' for the purposes of s 16(3)(a) of the COVID Response Act because the applicant operates a 'small business'[9] in the nature of a health club and uses the premises that is the subject of the Lease for the purposes of carrying on that business. I further find that the Commissioner issued a s 19 certificate.
[8] The term 'small commercial lease' is defined in s 3, COVID Response Act.
[9] Section s 3 of the COVID Response Act provides that the expression 'small business' has the meaning given in s 3(1) of the Small Business Development Corporation Act 1983 (WA).
Based on my findings above, I am satisfied that the Tribunal has jurisdiction, under s 16(1) of the COVID Response Act, to determine the application in respect of the 'code of conduct dispute'.
The Tribunal was also asked by the applicant to determine if it is entitled to relief in respect of the following matters:
1)reimbursement of financial losses the applicant has suffered every month since the emergency period ended;
2)$990 paid for a default notice that was served on the applicant by the respondents on 28 May 2021 in respect of the non-payment of rent for April 2021 and May 2021;
3)$550 in lawyer's fees incurred by the applicant in defending the default notice referred to in (2) above;
4)relief in respect of gross rent payable under the Lease until the applicant can find an alternative location for its business;
5)reimbursement of $21,007.69 paid in respect of a default notice served on the applicant by the respondents on 21 July 2017;
6)reimbursement of $10,307.00 in lawyer's fees incurred by the applicant to defend the default notice referred to in (5) above; and
7)reimbursement of $465 paid by the applicant for the application to the Tribunal in respect of the default notice referred to in (5) above.
Pursuant to s 9 of the COVID Response Act, except in the circumstances prescribed,[10] a landlord cannot take prohibited action after the emergency period on the grounds of a breach by the tenant of a small commercial lease that occurs during the emergency period if the breach consists of, amongst other things, a failure to pay rent or any other amount of money payable by the tenant to the landlord under the small commercial lease.[11]
[10] See reg 2D, Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA).
[11] See reg 4AA(3), Commercial Tenancies (COVID-19 Response) Regulations 2020 (WA).
The applicant was served with a default notice by the respondents on 28 May 2021. I find that the serving of the notice on the applicant was not a 'prohibited action' for the purposes of s 8 and s 9 of the COVID Response Act because it related to the non-payment of rent for April 2021 and May 2021 and, therefore, was in respect of a purported breach of the Lease by the applicant that did not occur during the emergency period.[12] For this reason, I am not satisfied that the losses the applicant claims it suffered from the serving of the notice is a matter that arises out of, or in relation to, the operation of the COVID Response Act for the purposes of the definition of 'dispute' in s 14(1) of the COVID Response Act. Consequently, I find that the Tribunal does not have jurisdiction under s 16(1) of the COVID Response Act to determine this aspect of the applicant's claim and will decline to grant the relief sought by the applicant in respect of the default notice.
[12] ts 96-97, 2 December 2021.
The respondents had also served the applicant with a default notice on 21 July 2017. Because the default notice was served on the applicant before the emergency period commenced, I am not satisfied that the losses the applicant claims it suffered from the serving of the notice is a matter that arises out of, or in relation to, the operation of the COVID Response Act for the purposes of the definition of 'dispute' in s 14(1) of the COVID Response Act. Consequently, I find that the Tribunal does not have jurisdiction under s 16(1) of the COVID Response Act to determine this aspect of the applicant's claim and will decline to grant the relief sought by the applicant in respect of the default notice.
Further, I am not satisfied that the claim for relief in respect of financial losses purportedly suffered by the applicant since the emergency period ended (including relief in respect of the gross rent payable under the Lease) arise out of, or in relation to, the operation of the COVID Response Act. In any event, the applicant is not entitled to rent relief in respect of any period after the emergency period ended on 28 March 2021. Consequently, I will decline to grant the relief sought by the applicant in respect of these matters because I am not satisfied that the Tribunal has jurisdiction to deal with them under s 16(1) of the COVID Response Act.
The application, as it relates to the 'code of conduct dispute', falls within the Tribunal's original jurisdiction.[13] Pursuant to s 16(1) of the SAT Act, the Tribunal is to deal with a matter falling within its original jurisdiction in accordance with the provisions of the SAT Act and the enabling Act, which in this case is the COVID Response Act. Where there is an inconsistency between the SAT Act and the COVID Response Act, the latter Act prevails.[14]
The issues for determination
[13] State Administrative Tribunal Act 2004 (WA) (SAT Act), s 15(1).
[14] SAT Act, s 16(2).
The following issues arose for determination in relation to the 'code of conduct dispute':
1)is the applicant's request for rent relief during the emergency period supported by 'sufficient and accurate information' for the purposes of cl 5 of the Code?
2)is the applicant an 'eligible tenant' for the purposes of cl 2 of the Code and, therefore, entitled to rent relief for the emergency period?
3)if the answer to 2) is in the affirmative, should the Tribunal exercise its discretion to grant relief to the applicant taking into account the factors set out in s 17 of the COVID Response Act? and
4)if the answer to 3) is in the affirmative, is the applicant entitled to more than a 50% waiver of rent for the emergency period?
Relevant findings of fact
Certain relevant factual matters were not in dispute between the parties. I make the findings set out in this paragraph in relation to those matters:
1)The premises forms part of the property described as Lot 2 on Plan 15406 and being the whole of the land comprised in Certificate of Title Volume 2089 Folio 541 (property).[15]
[15] Exhibit 1, page 618.
2)The parties are the subject of a written lease in respect of part of the property referred to in the Lease as the premises, being Unit 1, 7 Cobbler Place, Mirrabooka.[16] The Lease is for an initial term of four years, commencing on 1 March 2018 and expiring on 28 February 2022, with an option to renew for a further term of two years.[17]
[16] Statement of Paul Alexander Samuels dated 18 November 2021, para 3; Exhibit 1, page 618.
[17] Exhibit 1, page 618.
3)The premises is approximately 580m2.[18]
[18] Exhibit 1, page 618.
4)Pursuant to the terms of the Lease, the premises is designated for use as a health club trading as 'Get Fit For Life' or such other use as approved by the respondents in writing.[19]
[19] Exhibit 1, page 619.
5)The applicant is liable under the Lease to pay a gross rent by equal and consecutive instalments of $11,515.86 (incl GST) per month, including utility charges and outgoings.[20] The amount of gross rent payable under the Lease resulted from a previous dispute between the parties in 2017 concerning the calculation and payment of outgoings.[21]
[20] Statement of Paul Alexander Samuels dated 18 November 2021, para 5.
[21] Statement of Paul Alexander Samuels dated 18 November 2021, para 9.
6)The applicant paid the full gross rent payable under the Lease for March 2020.[22]
[22] Statement of Paul Alexander Samuels dated 18 November 2021, para 11.
7)The applicant did not pay any amount towards the gross rent of $11,515.86 (incl GST) payable under the Lease for April 2020, May 2020 or June 2020.[23]
[23] Statement of Paul Alexander Samuels dated 18 November 2021, para 12-14.
8)The applicant has paid certain amounts towards the gross monthly rent of $11,515.86 (incl GST) as follows:[24]
[24] Statement of Paul Alexander Samuels dated 18 November 2021, para 15-24.
a.July 2020 - $6000
b.August 2020 - $2500
c.September 2020 - $2500
d.October 2020 - $3500
e.November 2020 - $4500
f.December 2020 - $5000
g.January 2021 - $7000
h.February 2021 - $7500
i.March 2021 - $6000
9)The parties have not reached any agreement in respect of the nature or extent of any rent relief for the emergency period.
10)On 28 May 2021, after the end of the emergency period, the respondents served a default notice on the applicant in respect of the unpaid portion of gross rent for April 2021 and May 2021.[25]
11)On 14 June 2021, the respondents arranged for a locksmith to attend the premises to change the locks as a result of the applicant's failure to comply with the default notice.[26]
12)The applicant is not a franchisee or a corporation that is a member of a group.
13)The applicant carried on a business in Australia on 1 March 2020.
Entitlement to rent relief under the Code
[25] Statement of Paul Alexander Samuels dated 18 November 2021, para 27(e); Exhibit 1, page 650-652.
[26] Statement of Paul Alexander Samuels dated 18 November 2021, para 27(g); ts 36, 2 December 2021.
Pursuant to cl 5(1) of the Code, a tenant under a small commercial lease may, during the emergency period, request rent relief from the landlord under the lease. Clause 5(2) of the Code provides that a request for rent relief by a tenant must be in writing and be accompanied by, amongst other things, 'sufficient and accurate information' that evidences that the tenant is an 'eligible tenant'.[27]
[27] Clause 5(2)(b), Code.
Clause 5(2) of the Code provides:
(2)The request must be in writing and be accompanied by the following –
(a)a statement by the tenant that:
(i)the tenant's lease is a small commercial lease; and
(ii)the tenant is an eligible tenant in relation to the small commercial lease;
(b)sufficient and accurate information that evidences that the tenant is an eligible tenant in relation to the small commercial lease;
(c)sufficient and accurate information that evidences the reduction in the tenant's turnover that -
(i)is associated with the business conducted on the land or premises that are the subject of the small commercial lease; and
(ii)the tenant has experienced during the emergency period or a relevant part of the emergency period.
Clause 4 of the Code sets out the overarching obligations of landlords and tenants in negotiations under a small commercial lease for the purposes of the Code.
Clause 4 of the Code provides:
In negotiations for the purposes of this Code, the landlord and the tenant under a small commercial lease
(a)must cooperate; and
(b)must act reasonably and in good faith; and
(c)must act in an open, honest and transparent manner; and
(d)must provide each other with sufficient and accurate information that is reasonable for them to provide in the circumstances for the purposes of the negotiations; and
Example for this paragraph:
Information evidencing a reduction in turnover of a business might include information relating to turnover generated from an accounting system or business activity statements submitted to the Australian Taxation Office.
(e)must not make onerous demands for information from each other.
Examples for this paragraph:
1.A demand to provide future cash flow projections.
2.A demand to provide balance sheets, or profit and loss or year to date financials.
3.A demand to provide bank balance details or statements.
4.A demand that financial information be verified, examined, assured, audited or provided by a third party such as an accountant.
From the provisions of the COVID Response Act and the Code, the primary purpose of the COVID Response Act is to provide speedy relief for tenants under commercial leases experiencing a decline in turnover as a direct result of the COVID-19 pandemic and that Parliament intended that landlords and tenants would act in good faith in negotiating that relief, whether it be in the form of a waiver and/or deferral of rent.
Having regard to the purpose of the COVID Response Act and applying the ordinary meaning of the terms 'sufficient' and 'accurate', I accept that the type of financial information that would satisfy cl 5(2)(b) and cl 5(2)(c) of the Code might vary from case to case but must be adequate in the circumstances to properly support a tenant's request for rent relief.
The applicant relied on business activity statements with quarterly turnover figures that fall within the 'relevant periods' set out in cl 12 of the Code (business activity statements). Based on the financial information disclosed in the business activity statements, I am satisfied that the applicant has provided sufficient and accurate information to the Tribunal in support of its application for rent relief. There was no dispute, and I find, that the applicant had not supplied its business activity statements to the respondents when the applicant requested rent relief in July 2020 despite requests from the respondents to 'provide two years' worth of financials P&L month by month'.[28] No doubt if the applicant had provided more detailed financial information to the respondents prior to lodging its application with the Small Business Development Corporation, it may have avoided the need for a hearing before the Tribunal.
[28] Exhibit 1, page 152; ts 99, 2 December 2021.
Having regard to the financial information adduced by the applicant, I will next determine whether it is an 'eligible tenant' and, therefore, entitled to rent relief under the Code.
Is the applicant an 'eligible tenant'?
The applicant seeks an order from the Tribunal that it not be required to pay any deferred rent in respect of the emergency period.
To be entitled to rent relief under cl 5(1) of the Code, the applicant must be an 'eligible tenant'. The term 'eligible tenant' is defined in cl 2 of the Code as follows:
(1)During the period beginning on 30 May 2020 and ending on 27 September 2020 (the relevant period), a tenant under a small commercial lease is an eligible tenant in relation to the small commercial lease if -
(a)the following turnover in the financial year ending on 30 June 2019 was less than $50,000,000 -
(i)if the tenant is a franchisee - the turnover of the business conducted by the tenant at the land or premises that are the subject of the small commercial lease;
(ii)if the tenant is a corporation that is a member of a group - the turnover of the group;
(iii)in any other case - the turnover of the business conducted by the tenant at the land or premises that are the subject of the small commercial lease;
and
(b)the tenant -
(i)qualifies for the jobkeeper scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Commonwealth) section 7 during the relevant period; or
(ii)has, at any time during the emergency period before 28 September 2020, satisfied the decline in turnover test set out in section 8 of those Rules.
(1A)During the period beginning on 28 September 2020 and ending on 3 January 2021 (the relevant period), a tenant under a small commercial lease is an eligible tenant in relation to the small commercial lease if -
(a)the tenant meets the requirements of subclause (1C); and
(b)the tenant -
(i)qualifies for the jobkeeper scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Commonwealth) during the relevant period; or
(ii)does not qualify for the jobkeeper scheme during the relevant period, but nevertheless satisfies any test relating to turnover during July, August and September 2020 by which a person can qualify for the jobkeeper scheme during the relevant period.
(1B)During the period beginning on 4 January 2021 and ending on 28 March 2021 (the relevant period), a tenant under a small commercial lease is an eligible tenant in relation to the small commercial lease if -
(a)the tenant meets the requirements of subclause (1C); and
(b)the tenant -
(i)qualifies for the jobkeeper scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Commonwealth) during the relevant period; or
(ii)does not qualify for the jobkeeper scheme during the relevant period, but nevertheless satisfies any test relating to turnover during October, November and December 2020 by which a person can qualify for the jobkeeper scheme during the relevant period.
(1C)For the purposes of subclauses (1A)(a) and (1B)(a), a tenant meets the requirements of this subclause if the following turnover in the financial year ending on 30 June 2020 was less than $50,000,000 -
(a)if the tenant is a franchisee - the turnover of the business conducted by the tenant at the land or premises that are the subject of the small commercial lease;
(b)if the tenant is a corporation that is a member of a group - the turnover of the group;
(c)in any other case - the turnover of the business conducted by the tenant at the land or premises that are the subject of the small commercial lease[.]
The applicant will be eligible to qualify for the jobkeeper scheme under the Coronavirus Economic Response Package (Payments and Benefits) Rules 2020 (Cth) (CERP(PB) Rules) if it carried on a business in Australia on 1 March 2020, employed eligible employees, and satisfied the relevant decline in turnover test in the CERP(PB) Rules.[29]
[29] Section 6 and s 7 CERP(PB) Rules.
For example, in respect of a small business, the decline in turnover test set out in s 8 of the CERP(PB) Rules is satisfied when there is a shortfall in projected GST turnover for a turnover test period that equals or exceeds 30% for a relevant comparison period of the entity's current GST turnover. Section 8(7) of the CERP(PB) Rules defines the expression 'turnover test period' as a calendar month that ends after 30 March 2020 and before 1 January 2021 or a quarter that ends on 30 June 2020, 30 September 2020 or 31 December 2020. It also defines the expression 'relevant comparison period' as the corresponding period in 2019; that is, the same month or quarter in 2019.
It is the respondents' contention that the applicant has not established that it is an 'eligible tenant' for any 'relevant period'.
There are three relevant periods for which the applicant seeks rent relief. I will deal with each relevant period in turn below.
Relevant period from 30 May 2020 to 27 September 2020
(a) Turnover in the financial year ending 30 June 2019
The applicant, not being a franchisee or a corporation that is a member of a group, must first establish that the turnover of the business conducted by it at the premises that are the subject of the Lease was less than $50,000,000 in the financial year ending June 2019. [30]
[30] Clause 2(1)(a)(iii) Code.
It is the respondents' position that the applicant has failed to establish that the total turnover of all businesses operated from the premises was less than $50,000,000 in the financial year ending June 2019. The respondents argued that the applicant had not provided to the respondents any evidence of the turnover of other businesses that operated from the premises.
Mr Dean Martin, the Director of the applicant, said that a hairdresser had operated at the premises for about five to six years, that she had left and that the applicant had hired a new hairdresser who was building up her own clientele from members of the gym and externally.[31] He said that the applicant had disclosed to the respondents the income it received from the hairdresser in its turnover figures.[32] Also, the applicant had disclosed in its turnover figures the income received from personal trainers who operate from the premises and the chiropractor who paid a fee to the applicant in respect of client work generated from gym members.[33]
[31] ts 74-75, 2 December 2021.
[32] ts 78, 2 December 2021; Exhibit 1, page 692.
[33] ts 78, 2 December 2021.
Based on the evidence of Mr Martin, which I accept, and the business activity statements provided by the applicant,[34] I am satisfied that the turnover of the business operated from the premises was less than $50,000,000 in the financial year ending June 2019.
(b) Qualifies for Jobkeeper
[34] Exhibit 1, page 229-244.
The applicant must establish that it qualified for the Jobkeeper scheme during the relevant period or, if not, that it nevertheless satisfied the decline in turnover test set out in r 8 of the CERP(PB) Rules at any time during the emergency period before 28 September 2020.
The applicant tendered an Australian Taxation Office record showing that it received Jobkeeper payments between 8 May 2020 and 7 April 2021.[35] Based on these records, which I accept, I am satisfied that the applicant qualified for the Jobkeeper scheme during the relevant period.
Relevant period from 28 September 2020 to 3 January 2021
(a) Turnover in the financial year ending 30 June 2020
[35] Exhibit 4.
For the relevant period from 28 September 2020 to 3 January 2021, the applicant must establish that the turnover of the business conducted by it at the premises that are the subject of the Lease was less than $50,000,000 in the financial year ending June 2020.[36]
[36] Clause 2(1A)(a), Code; 2(1C)(c), Code.
Based on the evidence of Mr Martin, which I accept, and the business activity statements provided by the applicant,[37] I am satisfied that the turnover of the business operated from the premises was less than $50,000,000 in the financial year ending June 2020.
(b) Qualifies for Jobkeeper
[37] Exhibit 1, pages 229-244.
The applicant tendered an Australian Taxation Office record showing that it received Jobkeeper payments between 8 May 2020 and 7 April 2021.[38] Based on these records, which I accept, I am satisfied that the applicant qualified for the Jobkeeper scheme during the relevant period.
Relevant period from 4 January 2021 to 28 March 2021
(a) Turnover in the financial year ending 30 June 2020
[38] Exhibit 4.
For the relevant period from 4 January 2021 to 28 March 2021, the applicant must establish that the turnover of the business conducted by it at the premises that are the subject of the Lease was less than $50,000,000 in the financial year ending June 2020.[39]
[39] Clause 2(1B)(a), Code; cl 2(1C)(c), Code.
Based on the evidence of Mr Martin, which I accept, and the business activity statements provided by the applicant,[40] I am satisfied that the turnover of the business operated from the premises was less than $50,000,000 in the financial year ending June 2020.
(b) Qualifies for Jobkeeper
[40] Exhibit 1, pages 229-244.
The applicant tendered an Australian Taxation Office record showing that it received Jobkeeper payments between 8 May 2020 and 7 April 2021.[41] Based on these records, which I accept, I am satisfied that the applicant qualified for the Jobkeeper scheme during the relevant period.
Applicant's entitlement to rent relief
[41] Exhibit 4.
For the reasons set out above, I find that the applicant is an eligible tenant in respect of each of the three relevant periods set out in cl 2 of the Code. Consequently, I conclude that the applicant is prima facie entitled to rent relief for each of those relevant periods.
I turn next to consider how much rent relief the applicant should be granted in light of its capacity to meet its obligations under the Lease and the other factors to which I must have regard in the exercise of my discretion.
Factors relevant to the exercise of discretion to grant relief
Under s 17(2) of the COVID Response Act, the Tribunal may exercise its discretion to make any order that it considers appropriate to resolve the dispute or proceedings. The Tribunal's discretion to make an order in respect of a dispute under the COVID Response Act is not limited by any power conferred by the SAT Act.
Without limiting the discretion of the Tribunal, the Tribunal has power under s 17(3) of the COVID Response Act to order a party to the proceedings to pay money to a specified person. Further, without limitation, the Tribunal may make an order in relation to a 'code of conduct dispute' that a specified amount of rent payable under the lease to which the dispute relates be waived for a specified period and/or a specified amount of rent payable under the lease be deferred and paid in a specified time frame.[42]
[42] Section 17(3)(c), COVID Response Act.
In making an order relating to a 'code of conduct dispute' under s 17(2) of the COVID Response Act, the Tribunal must have regard to the financial impact of the COVID-19 pandemic on the tenant's business and capacity to meet the tenant's obligations under the lease, the landlord's financial capacity, the principles of proportionality and fairness, and other relevant principles set out in the Code.[43]
Principles of proportionality and fairness
[43] Section 17(4), COVID Response Act.
Clause 7 of the Code sets out the principles of proportionality that apply in relation to a landlord's obligations to provide rent relief for the emergency period.
For example, cl 7(3) of the Code provides that rent relief offered by the landlord must be at least proportionate to the reduction in the tenant's turnover that is associated with the business conducted at the premises that are the subject of the small commercial lease and that the tenant has experienced in the emergency period. Rent relief provided by the landlord must be adjusted from time to time (but not more frequently than monthly) during the emergency period, to take into account any variation in the reduction in the tenant's turnover.[44]
[44] Clause 7(3A), Code.
Further, cl 7(5) of the Code provides that an offer of rent relief may relate to up to 100% of the rent payable under the small commercial lease. An offer of rent relief must provide that not less than 50% of the rent relief is to be in the form of a waiver of rent unless the landlord and tenant otherwise agree in writing.[45] Clause 7(7) of the Code provides that 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 failure to provide more than 50% would compromise the tenant's capacity to fulfil the tenant's ongoing obligations under the small commercial lease and the landlord has the financial capacity to provide more than 50% in the form of a waiver.
[45] Clause 7(6), Code.
I consider that the principles of proportionality that apply to rent relief under the Code are relevant to the exercise of my discretion to order rent relief under s 17(2) of the COVID Response Act.
The applicant's decline in turnover
It is the respondents' contention that the applicant has produced two competing or contradicting sets of financial information. First, a report from the applicant's accountant and, second, the business activity statements. The respondents do not consider either set of figures reliable but say that if the Tribunal is to accept one as the basis to determine rent relief then it should be the business activity statements.[46]
[46] ts 121, 2 December 2022.
The respondent relied on the evidence of Mr Samuels who is the property manager engaged by the respondent to manage the premises. Mr Samuels prepared a witness statement[47] and attended the hearing as a witness for the respondent. Based on the applicant's business activity statements,[48] Mr Samuels produced a rent relief calculation spreadsheet (spreadsheet) showing the proportionate reduction in turnover of the applicant's business for the quarterly reporting periods between 2019 and 2020, and between 2020 and 2021, expressed as a percentage reduction.[49]
[47] Statement of Paul Alexander Samuels dated 18 November 2021 (Exhibit 5).
[48] Except the period October 2019 to December 2019 which is based on the GT Accounting Professionals figures (Exhibit 1, page 649) because of an error in total sales in the business activity statement for that period (Exhibit 2).
[49] See Exhibit 1, page 695.
Below is an extract from Mr Samuel's spreadsheet showing the applicant's turnover:[50]
[50] Rent relief calculation spreadsheet prepared by the respondent in accordance with order 1 of the Tribunal's orders made on 10 December 2020.
2019
2020
2021
% reduction in turnover
April - June
$88,785.00
$25,288.00
N/A
71.51%
July - Sept
$79,388.00
$42,535.00
N/A
46.43%
Oct - Dec
$71,999.00
$52,551.00
N/A
27.01%
Jan - March
N/A
$82,120.00
$56,178.00
32.00%
Total
$240,172.00
$202,494.00
$56, 178.00
N/A
The following is a rent relief calculation for the emergency period based on the spreadsheet produced by Mr Samuels:
Rent due prior to any reduction
Rent relief based on % reduction
April - June 2020
$34,547.58
$24,704.97
July - Sept 2020
$34,547.58
$16,040.44
Oct - Dec 2020
$34,547.58
Nil*
Jan - March 2021
$34,547.58
$11,055.23
Total
$138,190.32
$51,800.64
* Note Nil rent relief for Oct - Dec 2020 as decline in turnover is less than 30%
In addition to the business activity statements, the applicant produced financial information prepared by an accountant which showed the decline in turnover for each month of the emergency period compared with the relevant comparison period of the preceding year.[51] The accountant who produced the figures was not called to give evidence and, therefore, it was not possible for the respondent to test the basis for those figures through cross-examination. For this reason, I prefer the evidence of Mr Samuels, and I find, that the applicant's business suffered a decline in turnover of 30% or greater in each of the quarterly reporting periods except October 2020 to December 2020 as set out in the tables above.
[51] Exhibit 1, page 649.
However, I find that the applicant is entitled to rent relief for the October 2020 to December 2020 quarter of $9,331.30 (incl GST) (based on 27.01% of the rent due) because it qualified for Jobkeeper in the relevant period between 28 September 2020 to 3 January 2021 and, therefore, was an eligible tenant. The principles of proportionality that apply to rent relief in cl 7 of the Code require that rent relief granted by a landlord should be at least proportionate to the losses suffered by the tenant due to a reduction in trade and must be adjusted from time to time during the emergency period to take into account variations in the reduction in the tenant's turnover that the tenant experiences during the emergency period.
Consequently, applying the principle in cl 7(3) of the Code that rent relief should be at least proportionate to the reduction in the applicant's turnover, I find that the applicant is prima facie entitled to rent relief in the sum of $61,131.94 (incl GST) for the emergency period.
Further, applying the principle of proportionality in cl 7(6) of the Code that an offer of rent relief must provide that not less than 50% of the rent relief is to be in the form of a waiver, I find that prima facie $30,565.97 (incl GST) of the applicant's rent relief should be waived and $30,565.97 (incl GST) should be deferred.
The Code provides that the payment of deferred rent should be paid in equal monthly instalments over 24 months, commencing on the day on which the emergency period ends or the expiry of the term of the small commercial lease (whichever is the earlier).[52] If the applicant is entitled to rent relief, the respondents accept that, applying the Code, the applicant would be required to pay to the respondents the deferred rent in 24 equal instalments from 1 April 2021.[53]
The applicant's capacity to meet the Lease obligations
[52] Clause 9(2), Code.
[53] ts 125, 2 December 2021.
The applicant rejected the respondents' assertion that there were sufficient funds in the business to be able to pay more rent. The applicant says there should not be any back-payment of deferred rent due to the financial position of the business which is running at a loss.[54] Mr Martin said that if it were not for Jobkeeper his business would have already closed.[55] He said:[56]
… The turnover of my business pre-COVID compared to the gross rent as a percentage is what I would consider quite a high percentage of rent that we pay, because our other expenses are quite low. And that allows us to run the business. We pay the rent, the highest expense of all of the expenses, draw the wages and then there's minimal expenses for the rest of the business and then it's profitable.
So when COVID hit and the turnover was affected by as much as it was, then with such a high percentage pre-COVID of that rent versus turnover it left my business in a position to not be able to commit to a 50 per cent waived, 50 per cent deferred. And I believe there should have been negotiations to discuss this, to be open, honest and transparent, to explain this to the landlord and say, 'This is the position my business is in. This is what I think we could do moving forward' and then we could work something out together, but I was never given that opportunity.
[54] ts 130, 2 December 2021.
[55] ts 129-130, 2 December 2021.
[56] ts 130, 2 December 2021.
It is the respondents' contention that the Tribunal should not exercise its discretion to grant more than 50% waiver of rent because the applicant's financial information shows that during the 2021 financial year the business reduced its indebtedness by half compared to where it was on 30 June 2020. The respondents observed that the applicant depreciated plant and equipment and still made a profit after paying a salary to its director and the director's wife, as well as superannuation, and, therefore, was more profitable during the 2021 financial year than the previous year.[57]
[57] ts 126-127, 2 December 2021.
Based on the evidence before me, I am satisfied that the applicant was profitable during the emergency period and that, with the benefit of the Jobkeeper payments, had the capacity to meet more of its financial obligations under the Lease than it met during that period.
The landlord's financial capacity
It is the applicant's contention that the respondents have the financial capacity to provide more than a 50% waiver of rent because the respondents were prepared to go without any rent when it attempted to 'lock the doors' on the applicant's business by serving a default notice after the emergency period had ended.[58]
[58] ts 6, 2 December 2021; ts 36, 2 December 2022; ts 129, 2 December 2021.
In contrast, the respondents contend that they do not have the financial capacity to provide more than 50% of the rent relief in the form of a waiver because the respondents have a mortgage over the property and require the rental income to make repayments.[59] They are also required to pay all rates, taxes, insurance and other outgoings in respect of the premises.[60] The respondents say that they have received substantially less rent than they were entitled under the Lease because of the applicant's unilateral decision to pay reduced rent.
[59] Exhibit 1, page 23.
[60] Exhibit 1, page 23.
There was evidence tendered by the respondents concerning the substantial amount of rent owed by the applicant under the Lease but no other evidence tendered in respect of the financial position of the respondents. In the absence of any such evidence, I will proceed on the basis that the respondents have the financial capacity to provide rent relief and that providing 50% of the rent relief in the form of a waiver would not be unreasonably burdensome to them.
Provision of sufficient and accurate information
Because the applicant has now produced business activity statements that show a decline in turnover in respect of the relevant periods, it is unnecessary for me to determine whether the information originally provided to the respondents by the applicant in support of its request for rent relief was 'sufficient and accurate' for the purposes of the Code. This would ordinarily be a factor that could justify a reduction in rent relief to which the applicant may otherwise be entitled. However, I consider it would be unfair to the applicant to place significant weight on this factor in circumstances where Mr Martin genuinely believed that he did not need to provide any further information after the respondents had agreed to provide rent relief,[61] the principles set out in the Code are relatively new, and there is limited judicial consideration of the expression 'sufficient and accurate'.
Exercise of discretion in this case
[61] ts 99, 2 December 2021.
Mr Martin said that he believed that the respondents were accepting of the amount of rent being paid during the emergency period.[62] For this reason, and due to current financial hardship, the applicant says that it should not have to pay any deferred rent.
[62] ts 129, 2 December 2012.
Given my findings above, there is nothing in the conduct of the parties or their financial positions that would cause me to refuse to award or to reduce the award of rent relief from that which I find to be proportionate having regard to the principles in cl 7 of the Code.
Accordingly, in the exercise of my discretion, I will make an order under s 17(2) and s 17(3)(c) of the COVID Response Act that the applicant is entitled to rent relief from the respondent under the Lease in the sum of $61,131.94 (incl GST) for the emergency period, with 50% waived for that period and 50% deferred.
Whilst the payment of deferred rent generally starts on the day the emergency period ends,[63] I consider it would be unfair to the applicant to require it to pay the deferred rent due from 28 March 2021 in one lump sum. Therefore, to give effect to the order for payment of rent relief, I will make a further order that the applicant is to pay the deferred rent of $30,565.97 (incl GST) to the respondents in equal monthly instalments of $2,547.16 for a period of 12 months commencing on 1 April 2022.
[63] Clause 9(2), Code.
Orders
The Tribunal orders:
1.The applicant's application is allowed in part.
2.Pursuant to s 17(2) and s 17(3)(c) of the Commercial Tenancies (COVID-19 Response) Act 2020 (WA) the applicant is entitled to rent relief from the first and second respondents under the lease to which the dispute relates in the sum of $61,131.94 (incl GST) for the period from 30 March 2020 to 28 March 2021 with $30,565.97 (incl GST) waived for that period and $30,565.97 (incl GST) deferred.
3.Pursuant to s 17(2) and s 17(3)(c) of the Commercial Tenancies (COVID-19 Response) Act 2020 (WA), the deferred amount of rent in the sum of $30,565.97 (incl GST) is to be paid by the applicant to the first and second respondents in equal monthly instalments of $2,547.16 commencing on 1 April 2022 for a period of 12 months.
I certify that the preceding paragraph(s) comprise the reasons for decision of the State Administrative Tribunal.
MS C BARTON, MEMBER
11 MARCH 2022
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