Update of Commercial Tenants & Landlords

June 8, 2020 Madsen Law

We trust that you and your family are safe and well during this season.

Queensland has now enacted the principles of the Federal Government’s Mandatory Code of Conduct for Commercial Leasing effective as of 28 May 2020.

For those interested in the technical legislative details, see below.  Here is a summary of the important details.

What Does the Legislation Aim to Achieve?

As you might expect the main purposes of this Regulation are to mitigate the effects of Covid-19 on small business Tenants and Landlords under Affected Leases and to establish a process for resolving Lease disputes.

Does it apply to me?

The Code is given effect and the Regulations apply to existing and new lease arrangements between the 29th of March 2020 and the 30th of September 2020.

The Code and Regulation apply to “Affected Leases”.  An Affected Lease is:-

  • A Retail Shop Lease;
  • A Commercial Lease (other than a Retail Shop Lease) under which the leased premises are wholly or predominantly used for carrying on a business (not including a farming business).  Not for profit operations and activities are included in the definition of carrying on a business; and
  • The Tenant is a SME entity with an annual turnover of less than $50,000,000.00; and
  • The Tenant is eligible for the JobKeeper scheme.

What Does This Mean for My Lease?

During the period of 29 March 2020 to 30 September 2020, Tenants with Affected Leases:-

  • May not be evicted or have their Lease terminated for non-payment of rent or outgoings;
  • Must have rent reduced in proportion to their lost turnover (at least 50% of the rent reduction offered must be in the form of a waiver);
  • May not have their rent increased;
  • May not be penalised for reducing trading hours or not opening;
  • May not have a claim made by the Landlord on a Bank Guarantee or a Security Deposit for unpaid rent or outgoings;
  • May not have any property seized for the purpose of securing payment of rent;
  • May not incur a payment of interest on, or a fee or a charge relating to any unpaid rent or outgoings.

What Steps Should I take?

Step 1

Landlords and Tenants for all Affected Leases should seek legal advice, start exchanging information and negotiating and ensuring their arrangements are formally documented.

Step 2

Either party may commence negotiation of rent by a notice in writing to the other party. The initiating party must supply information and make a clear statement about the terms of the Lease the initiator is seeking to change.

Step 3

The Tenant must give a statement to the Landlord that demonstrates why the Lease is an Affected Lease accompanied by supporting information and evidence including:-

  • Accurate financial information about the turnover of the Tenant’s business;
  • Information demonstrating that the Tenant is an SME entity;
  • Evidence of the Tenant’s eligibility for, or participation in the JobKeeper Scheme;
  • Information about any steps the Tenant has taken to mitigate the effects of Covid-19 Emergency on the Tenant’s business, including the details of any assistance being received by the Tenant from the Commonwealth State or Local Government;
  • In relation to a Franchisor – information about any concession or benefit provided to or by the Franchisor in relation to rent or outgoings for the premises occupied by the Franchisee and any undertakings to pass those concessions or benefits on to the Franchisee.

Step 4

Within 30 days of receiving the Tenant’s information, the Landlord must offer a rent reduction (and any other proposed change to the Lease) during the response period.

The rent reduction must be at least a 50% rent reduction and it must be offered in the form of a waiver of rent.  It is possible to negotiate a deferral of any payment of rent until after the response period, with the catch up of rent paid over a 2-3 year period.

Step 5

The parties must attempt to resolve the rent dispute before proceeding to the next phase which is Mediation.

To proceed to Mediation, a party must give a Dispute Notice in the approved form to the Small Business Commissioner Queensland.  The Small Business Commissioner will then arrange for a Mediator to mediate the Lease dispute.  As well as nominating the Mediator, the Commissioner will also nominate the Mediation date which is not more than 7 days from the date of the Dispute Notice.  Legal representation at the Mediation is only with the approval of the Mediator.

Step 6

The final phase of the dispute resolution process is an Application to QCAT if the parties have been unable to reach a settlement, or if a party failed to attend the Mediation without providing a reasonable excuse.

Where Can I Get More Information?

  1. The piece of legislation is the Retail Shop Leases and Other Commercial Leases (Covid-19 Emergency Response) Regulation 2020.  This piece of legislation implements the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During Covid-19.

2. You can find out more by contacting us.

This article was written by David Madsen, LLB, Acc. Spec. (Fam.)