FOXLAW on QLD Property Law

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