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New COVID-19 regulation assists retail and commercial landlords and tenants

Friday, June 26, 2020

On 28 May 2020 the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld) came into force under the COVID-19 Emergency Response Act 2020 (Qld).
 
The regulation was introduced to mitigate the effect of COVID-19 on lessors and lessees under “affected leases,” by giving effect to the good faith leasing principles agreed to by the National Cabinet on 3 April 2020.

 

The regulation also sets out a process for resolving small business tenancy and affected lease disputes.

 

What does the regulation mean for landlords and tenants?

The regulation imposes three main obligations on landlords and tenants of affected leases.

Obligation 1 – Cooperation

Landlords and tenants must cooperate and act reasonably and in good faith in all actions and discussions relating to the mitigation of COVID-19’s effect and other matters.

Obligation 2 – Restriction on landlord actions

Landlords cannot take prescribed actions against tenants during the response period for:

  1. failing to pay rent or outgoings entirely or partly within the response period; or
  2. as the businesses failed to open for hours required by the lease within the response period.

The “response period” is from 29 March 2020 to 30 September 2020.

“Prescribed actions” is defined as an action under a lease or through a court/tribunal for certain purposes. These purposes include; recovering possession, terminating a lease, evicting a tenant or exercising a right of re-entry to the premises.

However, under section 12(2) prescribed actions are not prevented in certain circumstances. See https://www.qcat.qld.gov.au/matter-types/retail-shop-lease-disputes for further information.

 

Obligation 3 – Restriction on rent increases

Landlords cannot increase rent payable by a tenant during the response period.  

If the lease provides that a rent review should occur within the response period, landlords may review the rent, however the increase cannot commence until after the end of the response period.

 

Does the regulation apply to your lease?

A lease will be subject to the regulation if it is an “affected lease.”

Generally, an affected lease is:

  • a retail shop or prescribed lease;
  • which is binding upon a tenant (either as the lease has commenced or there is an agreement to enter into a lease);
  • the tenant is a SME entity; and
  • the lessee is eligible for the JobKeeper scheme.

An SME entity is defined as an entity that carries on a business in the current year or is a non-profit body during the current year, and:

  1. the entity’s annual turnover is likely to be less than $50 million; and/or
  2. the entity carried on a business in the previous financial year or was a non-profit body during the previous financial year, and the annual turnover for the previous financial year was $50 million.

 

Is there an obligation on landlords and tenants to re-negotiate rent?

A landlord or tenant under an affect lease may, in writing, ask the other party to negotiate rent payable under the lease.

After the request, the parties must, as soon as practicable, give information to each other in relation to the request that is:

  1. true, accurate, correct and not misleading; and
  2. sufficient to enable the parties to negotiate fairly and transparently.

This information can include a clear statement of the terms the landlord or tenant seeks to negotiate or a statement/evidence that demonstrates why the lease is considered an “affected lease”.

The parties must then either negotiate the conditions of the lease or comply with the negotiation requirements specified under section 15 of the regulation.

 

Where can you find more information?

For more information visit https://www.business.qld.gov.au/starting-business/premises-location/covid-commercial-tenants

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