The Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 is one of the latest pieces of legislation enacted as a result of the COVID-19 pandemic. This legislation was made under the COVID-19 Emergency Response Act 2020 (Qld) and Retail Shop Leases Act 1994 (Qld) with the purpose of mitigating the effect of COVID-19 on small businesses and giving effect to the good faith leasing principles as outlined in the National Cabinet’s Mandatory Code of Conduct. The regulation applies until the end of the response period, which commenced 29 March 2020 and will end 30 September 2020.
The regulation applies to Small and Medium Enterprises (SME’s) under an affected lease. An SME for the purposes of the regulation is defined as a tenancy eligible for the JobKeeper programme with an annual turnover of less than $50 million.
A lease is an affected lease if it is a retail shop lease and each of the following conditions are met:
- The lease is binding on the tenant (irrespective of whether the lease has commenced);
- The tenant under the lease is a SME entity; and
- The tenant under the lease is eligible for the JobKeeper scheme.
Restrictions for Landlords
Landlords are prohibited under the regulation from taking Prescribed Action on the grounds of a failure to pay rent for a period occurring during the response period or for the tenant not operating during business hours as required under the lease.
A Prescribed Action refers to a range of prohibited actions under a lease, including the following:
- Recovery or possession;
- Termination of the lease;
- Eviction of the tenant;
- Exercising a right of re-entry to premises;
- Seizure of any property, including for the purpose of securing payment of rent;
- The payment of interest on, or a fee or charge relating to, unpaid rent or outgoings;
- A claim on a bank guarantee, indemnity or security deposit for unpaid rent or outgoings;
- Performance of an obligation by the tenant or other person under guarantee under the lease; and
- Exercising or enforcing another right by the tenant under lease or agreement relating to the lease premises.
While a variety of actions are prohibited under the regulation, parties under an affected lease may seek to negotiate the rent payable or any other terms of the lease. The regulation stipulates that parties to the affected lease must cooperate and act reasonably in negotiations associated with mitigating the effect of COVID-19.
Any request to negotiate must be made in writing and the party submitting a request must provide supporting information that is true and accurate while also allowing for fair and transparent negotiations to take place.
Most negotiations under the regulation will involve a tenant requesting a waiver or deferral or rental repayments. In such instances, landlords must agree to waive at least 50% of the amount of rent reduction offered.
If negotiations fail and the parties are unable to agree upon terms, the regulation also provides for access to various dispute resolution processes, which either party to the affected lease may commence.
How Can Landlords Ensure the Repayment of Deferred Rent?
Landlords will not be able to seek repayment of any deferred rent until the end of the response period, being 1 October 2020. The repayment of deferred rent must also be amortised in a way agreed on between all parties to the lease. Deferred rent must be paid over the balance of the lease term and the landlord is required to offer an extension of the lease for a period equivalent to the rent waiver/deferral period. However, in cases where the balance of the lease term is less than 24 months, the tenant may repay the deferred rent over a period of at least two (2) years but no more than three (3) years.
Whatever the method of rent repayment agreed upon, it is highly recommended that the agreement be meticulously recorded. Parties may do this through varying the lease or alternatively, by entering into a separate agreement.
Varying the lease is recommended in cases whereby the lease period has been extended. However, this can become difficult when further deferrals are requested. Several amendments to the lease can be expensive and time-consuming as each subsequent lease variation will need to be lodged at the Titles Office.
Another option is to enter into a separate Deed of Agreement. This is advantageous as the Deed will not require lodgement and can be amended by the parties when they see appropriate. A Deed also allows for more flexibility.
What Happens if my Tenant Does not Honour their Repayments?
Under the Regulations, notwithstanding the conditions of the lease, a landlord may hold any security until the deferred rent is repaid to ensure repayment. Further, the Regulation provides for various avenues for mediation, where upon completion, payment may be ordered.
If you require assistance in negotiating your lease get in contact with our office on (07) 3876 5111 for an obligation free consultation.
Kayleigh Whittaker, Associate
About the author
Kayleigh Whittaker is an associate on our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.