Retail Shop & Commercial Leases Regulation (Fact Sheet)
On 28 May 2020, the Queensland Government introduced the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Regulation). While the aim of the Regulation is to give effect to the Commonwealth Government’s National Cabinet Mandatory Code of Conduct (Code), unlike the Code the Regulation does not expressly require that rent reductions be proportionate to the reduction in the tenant’s turnover. The following COVID-19 retail shop and commercial leases fact sheet provides general guidance in navigating the Regulation.
The Regulation does contain a number of complex mechanisms and requirements that require careful consideration. Parties to an affected lease should seek professional legal help to negotiate and document the terms of any arrangement implemented under the Regulation (or otherwise).
Regulation Response Period
The Regulation applies during the period 29 March 2020 until 30 September 2020 (Response Period).
Affected Leases under the Regulation
The Regulation applies to affected leases. Affected Leases are:
- Retail shop leases and leases where the premises are wholly or predominately used for carrying on a business; and
- The tenant is a small to medium enterprise (being an entity with a turnover likely to be less than $50M for the current financial year or which had a turnover of less than $50M in the last financial year); and
- The tenant is eligible for the JobKeeper scheme. To meet the eligibility criteria for the JobKeeper programme a tenant must have a 30% or greater loss in revenue. There is no requirement that the tenant has in fact applied for or been granted Jobkeeper.
Prohibition on taking certain action
If the tenant of an affected lease fails to pay rent and/or outgoings or does not open for business during the Response Period, a landlord is prohibited from taking the certain action under the lease. These actions include (without limitation):
- Recovering possession or exercising a right of re-entry;
- Terminating the lease or evicting the tenant;
- Seizing or forfeiting property;
- Charging fees or interest or claiming damages;
- Drawing on a bank guarantee or other security;
- Exercising or enforcing another right under the lease or guarantee or related agreement in relation to the premises
Regulatory ban on rental increases
During the Response Period landlords are prohibited from requiring a tenant to pay increased rent (other than where the rent increase is calculated by reference to turnover).
Scheduled increases can be applied but must not be passed on to the tenant until the Response Period ends.
Rent relief and other negotiations under the Regulation
Either party to an affected lease can initiate the process to renegotiate rent and other conditions of the lease. The initiating request must be in writing.
Once the renegotiation process is initiated, both parties must:
- act co-operatively, reasonably and in good faith;
- give each other information relating to the request that is:
- true, accurate, correct and not misleading; and
- sufficient to enable the parties to negotiate in a fair and transparent way.
Provision of Information
The Regulation lists examples of sufficient information which includes (among other things) a statement by the tenant that demonstrates why the lease is an affected lease (plus supporting financial information), steps taken by the tenant to mitigate the effects of the COVID-19 emergency and evidence of the tenant’s eligibility for Jobkeeper.
Within 30 days after the parties provide sufficient information as required above, the landlord must offer the tenant a reduction in the amount of rent payable under the lease, along with any other proposed changes to the lease terms.
The landlord’s offer of rent relief need not be equal or proportionate to the reduction in the tenant’s turnover. However, the offer must:
- relate to any or all for the rent payable during the Response Period;
- provide for no less than 50% of the rent relief to be in the form of a waiver of rent; and
- have regard to:
- all the circumstances of the tenant, including any reduction in turnover during the Response Period;
- the extent to which a failure to reduce the rent would compromise the tenant’s ability to comply with the lease;
- the landlord’s financial position, including any financial relief provided to the landlord as a COVID-19 response measure; and
- any reduction or waiver of statutory charges the landlord has received, where a portion of the rent or other amount payable under the lease represents an amount for those charges.
Negotiate in good faith
After the landlord’s offer is received by the tenant, the parties must cooperate and act reasonably and in good faith in negotiating rent reductions and variations.
Where the parties agree to defer part of the rent, repayment of the deferred rent must not commence until the day after the Response Period.
Additionally, the deferred rent is to be amortised over a period of at least 2 years and no more than 3 years.
The landlord can continue to hold any security provided under the lease until the deferred rent is paid (even if that is after the lease has ended).
If any part of the rent is deferred or waived, the landlord must offer the tenant an extension to the term of the lease for an equivalent period for which the rent is waived or deferred. Exceptions to this apply.
Any lease extension is to be on the same conditions as those contained in the lease prior to the variation, except the rent payable during the extension must be adjusted for the waiver or deferral.
Further rent negotiations
Either party may initiate a repeat of the process if a ground on which the original agreement was based changes in a material way, but any further rent relief need not include 50% of that rent relief as a rent waiver.
The Regulation preserves the right of landlords and tenants to negotiate an agreement that is inconsistent with the Regulation.
Any agreements struck between a landlord and tenant prior to the commencement of the Regulation remains valid. However, that prior agreement does not prevent either party from seeking to re-negotiate further rent relief under an affected lease in accordance with the Regulation.
If the parties reach agreement on the reduction of rent or the variation of any lease terms, the changes to the lease can be formalised by way of a variation to the lase or other agreement between the parties.
Legal Assistance regarding the Regulation
Parties to an affected lease should seek professional legal assistance to negotiate and document the terms of any arrangement implemented under the Regulation (or otherwise).
This is general information only and is not to be treated as legal advice.