BREAKING NEWS: New Regulation Just Released
The Queensland Government has released the regulations to accompany the Legislation which was enacted on 23 April 2020 dealing with retail and other commercial leases and the Covid-19 pandemic.
Unfortunately, the entire process has taken some considerable time from when the Prime Minister and the National Cabinet initially announced the mandatory code. Then came the Covid-19 Emergency Response Act 2020 on 23 April 2020 and finally, The Retail Shop Leases and other Commercial Leases (Covid-19 Emergency Response) Regulation 2020 on 28 May 2020.
Finally, the regulation provides certainty and clarity as to many of the details surrounding the relationship between commercial Landlords and Tenants in what has turned out to be one of the most contentious areas for businesses and investors alike during the Covid-19 pandemic.
What are those details:
- To be eligible you must either have a Retail Shop Lease or a Lease of a premises which is wholly or predominantly used for carrying on a business.
- You must be a small to medium enterprise – generally a business with an annual turnover of less than $50,000,000.00.
- The Lessee must be an entity that is responsible for employing staff and is eligible for the Job Keeper Scheme.
In those circumstances the regulations apply, and a Landlord is not entitled to take any of the prescribed actions. Those include, taking recovery of possession, terminating the lease, eviction the Lessee, exercising rights to re-enter the premises, seizure of property, forfeiture, damages, seeking payment of interest or a fee related to unpaid rent, claiming on a Bank Guarantee or security deposit, seeking performance under a Guarantee or exercising a right under the lease relating to the lease premises. These actions are prohibited where a Tenant has failed to pay rent, outgoings or is not open for business during the “response period”.
The “response period” is defined as commencing on 29 March 2020 and ending 30 September 2020. There had previously been some discussion if the legislation would apply retrospectively or would only apply from 23 April 2020.
In circumstances where there is a genuine attempt by a Landlord to negotiate rent, but the Lessee substantially fails to comply with their obligations under the lease or the grounds under which the Landlord takes action are not related to the effects of Covid-19 the Landlord will not be prevented from taking these courses of action.
The parties are required to negotiate rent and other conditions in good faith. The lessee will usually request a reduction in writing from the Landlord to begin those negotiations. This should include true and accurate information to enable the parties to negotiate a fair settlement. This includes provision of accurate financial information or statements about the turnover of the Lessees business.
Within 30 days of receiving such a request the Lessor must offer a reduction in rental in accordance with the regulations, this will include at least 50% of the rental reduction to be in the form of a Rental Waiver.
The reduction in rental and conditions relating to any reduction can be given effect by way of either a Variation of Lease or another agreement between the parties. The regulations provide for a further rent negotiation provision where one party may ask the other to renegotiate if there is a material change of the grounds upon which the agreement between the parties was based.
In relation to any portion of the reduction given by way of deferred rental, that deferred rental will be repayable using a method agreed between the parties over a period of at least 2 years but no longer than 3 years. The Landlord can continue to hold any security deposit until that deferred rental has been repaid.
Specific provision has been made for extending a lease and a Lessor must offer a Tenant an extension (on the same terms and conditions) for the period of the rental waiver or deferral. For example, if a rental waiver or deferral lasted for 6 months then the Landlord must offer to extend the Lease of the Tenant for a period of 6 months on the same terms and conditions, subject to the remaining clauses of the regulations.