On 28 May 2020, the Queensland Government released the long awaited Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (the Regulation).
The purpose of the Regulation is to give effect to the Commonwealth Government’s National Cabinet Mandatory Code of Conduct and to establish a process for resolving disputes between parties during the COVID-19 emergency.
In keeping with the stated purposes of the Regulation, we have separated this article into two parts, the first of which deals with whether the Regulation applies to your business, sets out prohibited actions of the landlord and the negotiation principles the parties must follow in attempting to reach a negotiated outcome, while the second deals with the dispute resolution process to be followed where the parties cannot reach agreement on relief to be provided despite genuine attempts by both parties to reach agreement.
This article provides detail on the first part of the Regulation – the ‘Applicability and Negotiation Principles’.
Part 2 titled Queensland government provides certainty for landlords and tenants: Dispute resolution processes is relevant to where the parties are in dispute.
In addressing the Applicability and Negotiation principles, we note the following key provisions:
The Regulation is transitional, such that it only applies between 29 March 2020 and 30 September 2020.
Affected Leases are retail shop leases and leases where premises are to be wholly or predominately used for carrying on a business and where the tenant is an SME and is eligible for the JobKeeper scheme.
An SME is an entity having a turnover likely to be less than $50m for the current financial year, or which had a turnover of less than $50m for the last financial year.
If the tenant fails to pay rent and/or outgoings or does not open for business during the Response Period, a landlord is prohibited from taking the following Prescribed Action(s) including the starting of a proceeding in a court or tribunal, or for any of the following in relation to the Affected Lease:
NB: There are certain circumstances where a landlord can take a Prescribed Action but these are limited.
Other than where a rental increase is calculated by reference to turnover a landlord is prohibited from requiring the tenant to pay increased rent during the Response Period.
A landlord is entitled to apply a scheduled increase however they must not pass that increase onto the tenant until the Response Period ends (i.e. on or after 1 October 2020).
Parties are required to act co-operatively, reasonably and in good faith in all dealings and discussions associated with proposed relief.
Where a party approaches the other to negotiate the rent and other conditions, the parties must as soon as practicable give each other information relating to the request that is both:
The Regulation sets out examples regarding what is considered ‘sufficient information’ e.g., financial information, steps taken by tenant to mitigate the effects of the pandemic and other similar, relevant information
Within 30 days of receiving sufficient information, the Landlord must offer the tenant a reduction in the amount of rent payable and any other proposed changes to the conditions of the lease.
Any offer made by the landlord must:
Interestingly, while a decrease in the tenant’s turnover must be taken into account, the Regulation does not ‘tie’ any rent reduction to that decrease. Nevertheless, that would still be the most obvious and equitable way to determine the level of rent relief a landlord offers a tenant.
Any agreement reached by the parties can be given effect by entry into a variation of the lease or another agreement. The disclosure obligations under the Retail Shop Leases Act (RSLA) do not apply to these agreements
If an agreement has been reached by the parties, and a ground on which the agreement was based changes in a material way, a party may ask the other to negotiate a further reduction in rent during the Response Period. However, any further relief need not include waived rent.
If the material change has been positive from the tenant’s perspective, any renegotiation can be for the purposes of reducing the relief initially offered.
If the parties agree that rent will be deferred, the variation of lease or agreement reached:
The landlord may continue to hold any security provided under the lease until the deferred rent is paid, even if that is after the lease has ended, and where it does so, the landlord has the same rights to claim on the security under the conditions of the lease that were in effect immediately before it ended.
Where the rent is deferred or waived, the Landlord must offer the tenant an extension to the term of the lease on the same terms and conditions as are existing, except the rent payable must be adjusted for the waiver or deferral.
The period of the extension is to be commensurate to the period during which the rent is waived or deferred.
However, the landlord is not obliged to offer the extension if the landlord:
Nothing in the Regulation:
The release of the Regulation hopes to offer certainty to parties, by providing a manageable path to achievable outcomes and a certain dispute resolution process where communications break down.
We understand that these are certainly challenging times for all parties and confirm our commitment to you that we are here to help. Whether you are a landlord, a tenant or an asset manager, you can contact us to discuss your position and concerns and options available to you.
Article written by Fiona Sears (Partner) and Sharon O'Toole (Special Counsel).
"The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication."