The Covid-19
Rent Relief Regulation – Commercial and Retail Leasing in Queensland
What is this blog post
about?
The Retail Shop
Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation
2020
It commenced on 28
May 2020 and expires 31 December 2020.
Applies to
“affected leases” only. An “affected lease” is one where:
-
The
lease is a retail shop lease or a “prescribed lease” (one for carrying on a
business);
-
The
lease was binding by 28 May 2020;
-
The
tenant is a SME entity (turnover under $50M); and
-
The
tenant (or an associated entity which employs the employees at the premises) is
eligible for JobKeeper (30% decline in turnover).
The Regulation applies
during the “response period” of 29 March 2020 to 30 September 2020. The Regulation
expires on 31 December 2020 (to allow time for disputes to be resolved via the
dispute resolution process).
Rights and
Obligations
-
Act
reasonably and in good faith and in a transparent manner;
-
Landlord
is prohibited from taking certain “prescribed actions” (e.g. suing for
non-payment of rent, termination, claiming on security, etc);
-
Rent
increases are deferred during the response period;
-
Landlord
must offer term extensions (there are exceptions though); and
-
Landlord
may reduce services (subject to any reasonable request by the Tenant).
The Negotiation
Process
-
Either
party can begin the process;
-
Tenant
to provide information (e.g. about eligibility);
-
Landlord
must make offer (within 30 days after information is provided);
-
Negotiations
in good faith (no particular time limits);
-
Agreement
(which should be documented in an acceptable form);
-
Dispute
resolution (where appropriate).
Rent and
Other Relief
-
Applies
during the response period (29/3/20 – 30/9/20);
-
At
least 50% must be a complete waiver of rent (as opposed to deferral);
-
The
balance may be deferred rent (no payments before 1 October 2020, repayable over
a minimum of 2 years (maximum of 3 years), where the Landlord cannot require payment
of interest);
-
A
term extension must be offered by a Landlord, where there is rent relief (waiver
or deferral), for the same timeframe as that rent relief is in operation
(however, there are exceptions to this, e.g. if the Landlord already has contractual
obligations to another tenant or if they themselves intend to use the
premises).
Things to be Considered
-
Circumstances
of the tenant and affected lease, including turnover reduction;
-
Extent
to which a failure to reduce rent would compromise the tenant’s ability to
comply with their obligations under the lease;
-
The
Landlord’s financial position (including any relief being received, e.g. land
tax relief);
-
If
a portion of what is payable represents an amount of outgoings, any reduction
in the amount payable.
Freedom to
Contract
-
It
is open to the parties to enter into an agreement which is inconsistent with
the Regulation.
-
However,
if they do, any party can seek to negotiate an arrangement consistent with the
Regulation (e.g. at a later time).
-
If
a party is unwilling to discuss or negotiate an arrangement, there may be
consequences for that party.
Other Issues
-
Either
party to a rent relief agreement may seek to renegotiate it if there has been a
material change in the circumstances which led to the agreed rent reduction.
-
Landlords
should seek advice from their accountant regarding GST. GST may still be
payable on deferred rent if the Landlord accounts for GST on an accrual basis.
Talk to accountant.
-
Any
security deposit held by the Landlord may be retained until deferred rent is
repaid. However, the Regulation does not address ‘bank guarantees’ specifically.
Part of the negotiated agreement might be to extend the expiry date of any bank
guarantee held (potentially).
-
What
happens to deferred rent if the lease is assigned? Does deferred rent become
immediately payable? This may also be dealt with in the agreement.
Dispute
Resolution
-
There
are mechanisms for
“eligible lease disputes”, which are either:
A. “affected lease disputes”; or
B. “small business tenancy
disputes” involving a “small business” being one carried on by a sole trader or
one employing fewer than 20 full-time equivalent employees.
-
These
mechanisms can be used even where the lease itself provides for an alternative
dispute resolution process.
-
Prior
to any mediation under the Regulation, the parties must attempt to resolve
their dispute and must cooperate, act reasonably and in good faith.
-
The
next step is for the parties to participate in a non-binding mediation. This is
started by a party giving notice to the Small Business Commissioner, who may
accept or reject it (e.g. it may be rejected if regarded as frivolous or
vexatious). The Commissioner pays the mediator’s costs, but the parties must
bear their own costs of the mediation. Settlement agreements must be in writing
and signed by the parties.
-
Where
the mediation fails to resolve the dispute, the matter may then be referred to
QCAT (following lodgement of a notice of the outcome of the mediation). Note
there are some situations where a mediator must not mediate a dispute (see
s39).
-
Parties
can also choose another method of dispute resolution (e.g. round table
negotiation, arbitration, etc).
-
If
an “eligible lease dispute” is also a “retail shop lease dispute”, the dispute
resolution process under the Regulation applies rather than the process under the
Retail Shop Leases Act 1994 (except where the dispute was already on
foot prior to 28 May 2020, in which case the parties can choose whether to
switch over to the mechanisms under the Regulation).
Role of QCAT
and Courts
-
QCAT
has jurisdiction to make a wide range of orders that QCAT considers to be just.
-
A
party may apply to QCAT where an “eligible lease dispute” is within QCAT’s
jurisdiction and the parties cannot reach agreement, or where a party doesn’t
attend mediation (without reasonable excuse), or where there is non-compliance
with a settlement agreement.
-
In
some instances QCAT will not have jurisdiction, for example, where the dispute
is about an issue that is or has been before a Court, where it is a service
station lease or where the damages claimed exceed $750,000.00 (the District
Court limit).
The above
information is a summary of the Regulation and is not comprehensive/exhaustive.
Always get specific advice in relation to your particular situation before
taking any particular course of action.
All the best… and
negotiate with empathy!
Cheers,
Josh Fox