QLD has now passed legislation giving effect to the Mandatory Code of Conduct, with the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 taking effect on 29 March 2020, and applying for six months until 30 September 2020.
Which leases are covered?
The following leases are covered by the Regulation:
- a retail shop lease under the Retail Shop Leases Act 1994; and
- a lease under which the leased premises are to be wholly or predominantly used for carrying on a business (excluding farming businesses).
Which leases are eligible?
Affected leases are those leases under which the tenant:
- qualifies for the JobKeeper Scheme; and
- had a turnover for FY2018-19 of less than $50 million (or is likely to satisfy this threshold in the current financial year).
If the tenant is a franchisee, the turnover is assessed for the subject premises only, whereas corporate group tenants are assessed at the group level.
Restrictions on landlords
A landlord under an affected lease must not:
- terminate the lease or take any other similar action to evict the tenant;
- require interest to be paid;
- claim on a security bond, bank guarantee or indemnity;
- require a guarantor to perform the obligations of the tenant; or
- increase the rent (other than turnover rent),
on any of the following grounds:
- a failure to pay rent or outgoings for a period occurring wholly or partly during the period 29 March to 30 September; or
- not being open for business during the hours required under the lease during the period 29 March to 30 September.
Important Note: If a rent review arises during the six-month period, the landlord can increase the rent after 30 September 2020 but cannot “back date” the rent review.
Restrictions on landlords
If the parties are unable to resolve a lease dispute between themselves, a party may give notice of the dispute to the small business commissioner, who may either accept or dismiss the dispute notice.
If accepted, the small business commissioner must nominate a mediator and give details to both parties of the time and date for the mediation to be conducted.
Tenants may request a renegotiation of rent in writing and must provide information that is true, accurate, correct, not misleading and sufficient to enable the parties to negotiate in a fair and transparent way
The Regulation sets out examples of sufficient information to include:
- accurate financial information or statements about the turnover of the tenant’s business;
- information demonstrating that the tenant has a turnover of less than $50 million;
- evidence of the tenant’s eligibility, or participation in, the JobKeeper Scheme;
- information about any steps taken by the tenant to mitigate the effects of the COVID-19 pandemic on the tenant’s business; and
- details of any assistance being received by the tenant from governmental bodies.
Within 30 days of receiving sufficient information, the landlord must offer a rent reduction proportionate to the tenant’s reduction in turnover. At least 50% of that reduction must be in the form of a waiver, with the balance to be deferred and amortized over a period of between 2 and 3 years.
Example: If a tenant has experienced a 50% reduction in turnover for any month between 29 March and 30 September, the landlord should offer a 25% waiver and a 25% deferral.
We recommend this reduction be documented as a temporary variation to the lease.
Breaches unrelated to COVID-19
Landlords are not prevented from taking action on grounds that are not related to the COVID-19 pandemic. For example, landlords may take action against tenants who damage or abandon premises.
Similarly, landlords are only prohibited from taking action for non-payment of rent during the period 29 March to 30 September 2020. Non-payment of rent for the months of February and most of March is outside of the six-month period and landlords can enforce their rights with respect to any failure to pay rent prior to 29 March 2020.
Landlords may also enforce their rights under the lease if, despite genuine attempts by the landlord to negotiate rent, the tenant has substantially failed to negotiate in good faith or provide sufficient information.