The Queensland Government has announced a range of temporary legislative changes to protect residential tenants during the COVID-19 crisis. Among these are:

• Ban on eviction: A freeze on evictions due to rent arrears for Queensland residential tenants experiencing financial distress due to the impacts of COVID-19 (effective for 6 months from 29 March 2020).
• Extension of lease: If a lease expires within the 6 month freeze on evictions, landlords must offer a minimum six month extension of the lease.
• Break lease costs: Break lease costs will be capped at the equivalent of 1 week rent during the COVID-19 pandemic.

Landlords are also being urged to consider requests for reduced rent if their tenant is experiencing financial hardship due to COVID-19. As discussed in more detail below, before agreeing on a particular type of rent relief (i.e. deferral or waiver) landlords should carefully consider their own particular circumstances (including the terms of the lease as well as any loan or insurance policies).

The new laws have not yet been passed. However, once implemented the measures will significantly alter the rights between landlords and residential tenants. Before taking any action, it is recommended that landlords carefully consider their own circumstances and seek legal advice to ensure their legal rights are preserved to the fullest extent possible.

Further details on the measures to be implemented and potential legal issues associated with these are outlined below.

 

Ban on evictions

The Queensland government will be legislating to place a freeze on evictions due to rent arrears for Queensland tenants experiencing financial distress due to the impacts of COVID-19.
This freeze will apply from 29 March 2020 and continue for a period of 6 months.

It has been reported that many residential tenants have already been evicted (or steps are being taken to evict them). At this point in time, these evictions (depending on the circumstances) may be lawful as no laws relating to the rights and liabilities of residential landlords and tenants have been repealed or amended. Until the laws are actually changed the Queensland Civil and Administrative Tribunal must apply the current law and has no authority to stop lawful evictions.

However, it is important to note that the law relating to the proposed moratorium on evictions will be retrospective – meaning it will be backdated to apply from 29 March 2020. Landlords who have lawfully evicted a tenant (or issued a notice to leave) due to the non-payment of rent on or after 29 March 2020, may therefore be forced to reinstate the lease or withdraw the notice to leave if the tenant can show that the non-payment of rent was due to financial distress because of the impacts of COVID-19.

A notice to leave issued on or before 29 March 2020 may still apply if it was:

• For rent arrears not caused by financial distress due to COVID-19. In these circumstances, landlords can, and should, follow the normal breach process for rent arrears.
• An approved reason to end a tenancy that is not related to rent arrears. The full set of approved reasons to end a tenancy are available on the RTA website.

In determining the reason for a failure to pay rent, landlords are entitled to ask the tenant why they are having trouble paying their rent but cannot ask for information about their finances.

Where the parties are in dispute, conciliation through the Residential Tenancies Authority (RTA) will be a mandatory process. The RTA can ask the tenant to provide information about their personal finances.

 

Lease extensions

If a lease is due to expire within the 6 month period that the freeze on evictions applies and the tenant wishes to stay in the property, landlords must offer the tenant a 6 month extension of the lease. This is not a new agreement, but an extension of the current agreement.

Issues that may arise in these circumstances include (but are not limited to):

New lease

In anticipation of the current lease expiring, landlords may have already issued a notice to leave and/or secured a new tenant for the property. While a notice to leave may be valid if it was issued due to the end of a fixed term or to terminate a periodic tenancy, landlords must nevertheless offer the existing tenant a 6 month extension of the lease if the tenant indicates he or she wishes to stay. For those landlords that have already lined up a subsequent tenant, their ability to grant a new lease (or – if already signed – comply with the terms of that lease) will be impacted.

Potential breach of sale contract

Landlords that have already contracted to sell the property should carefully review the terms of the contract to ensure an extension of the lease (or ban on evictions) will not place them in breach of the sale contract. For instance – some contracts require the seller to provide vacant possession on settlement. If an extension of the lease is granted, it may no longer be possible for the seller to provide the buyer with vacant possession and they may find themselves in breach of the contract as a result.

Likewise, many sale contracts impose an obligation on the seller not to vary or extend the terms of the lease (among other things) without the buyer’s consent. Where the buyer refuses to consent, any such variation or extension of the lease may result in the seller breaching the terms of the sale contract.

A breach of the sale contract may entitle the buyer to (without limitation) terminate the contract and sue the seller for damages.

Transfer duty concession- principal place of residence

An extension of the lease may also have transfer duty consequences for those owners that acquired the property as their principal place of residence but with an existing tenant in place.

Under the Duties Act 2001 (Qld) (Duties Act), a person may purchase a property with an existing tenant and claim the principal place of residence transfer duty concession. However, to remain eligible for the concession, the existing tenant must move out on the earlier of the expiration of their lease or within 6 months. If the tenant does not vacate the property within this timeframe (including due to a ban on evictions or extension of lease imposed by law) notice must be given to the Office of State Revenue that the owner no may no longer be eligible for the concession. This notice must be given within 28 days of the person becoming aware that the requirement can no longer be met.

The concession may still be claimed if a person cannot occupy the home because of an “intervening event” (although notice still needs to be given). At this point in time, the definition of “intervening event” does not include a legal obligation to extend the lease or allow the tenant to remain in occupation. Accordingly, unless changes to the Duties Act are made, those that previously purchased a property as their principal place of residence may lose their transfer duty concession and be required to pay additional transfer duty as a result of the mandatory 6 month lease extension or freeze on evictions.

Break lease costs

Tenants experiencing financial hardship may be able to break their lease, if they can demonstrate that the financial hardship is due to COVID-19. Break lease costs will be capped at the equivalent of one week rent during the COVID-19 pandemic.

 

Rent Relief

Landlords are being urged to consider requests for reduced rent if their tenant is experiencing financial hardship due to COVID-19. In light of the moratorium on evictions, landlords may have little choice but to negotiate some form of rent relief.

It is important that the type of rent relief offered or agreed to is weighed against the particular circumstances of the parties as well as the terms of the lease, insurance policies and any applicable loans.

In considering requests for rent relief, we recommend that landlords:

• Consider offering abatement/deferral rather than rent free, noting that insurance payouts in the event of damage and/or property valuations could be compromised where rent has been reduced rather than deferred.
• Consider the terms of your loan and speak with your bank. Many investment loans include “material adverse event” or “material adverse change” provisions. These are often described as “a change which has a material adverse impact on the financial performance of a borrower or its ability to service their loan”. Where these provisions are enlivened, your financier may be entitled to reassess the loan or take other action.
• Check the terms of insurance policies. In particular – will a voluntary grant of rent relief prevent you from making a claim against your insurance policy for loss of rent?
• Consider all options, including (but not limited to):
  • subject to the terms of your loan or insurance policies, agreeing to a rent free period in exchange for agreement to extend the term of the lease by a period equal to the rent free requested; or
  • temporary utilisation of some or all of the security bond.

As a freeze on evictions has been announced, renters and property owners are encouraged to agree on solutions together. If this is not possible, conciliation through the RTA will be a mandatory process. The Queensland Government is currently developing principles to guide negotiation and conciliation.

 

Documenting amendments

Any agreement to amend or extend the lease should be put in writing. The RTA has a COVID-19 General Tenancy COVID-19 special terms form (18D) so the new agreement can be recorded properly. It’s available on the RTA site in the forms section.

Before recording any agreement in writing it is important to get proper legal advice.

 

Need help?

Ramsden Lawyers are advising landlords and tenants in relation to COVID-19 and its impact on their leasing arrangements. If you would like us to review your lease or consider your particular rights and obligations, please contact one of our lawyers on 1300 749 709.