Gold Coast commercial landlords and tenants will have greater clarity over lease variations with the release of a new regulation by the Queensland Government.
The new regulation has significant implications for both parties and sets out a framework which allows tenants affected by COVID-19 to negotiate significant rent reductions and prevents landlords from evicting tenants or calling on bank guarantees for unpaid rent.
The Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Regulation) was released on 28 May 2020.
It is critical that you understand your rights and obligations under the Regulation before inadvertently compromising your position when discussing your lease with the other party.
If you are a tenant affected by COVID-19, or a landlord with tenants that have been affected, you should contact us as soon as possible to understand how the Regulations will affect you.
Key matters of Regulation
To mitigate the effects of the COVID-19 pandemic on landlords and tenants.
What leases/tenants qualify?
The Regulations apply to ‘affected leases’. An ‘affected lease’ is:
- a retail shop lease or a lease for premises used wholly or predominantly for carrying on a business (i.e. most commercial leases);
- a lease (or agreement to lease) which bound the tenant on or before 22 April 2020 (even if the lease had not commenced on that day); and
- a lease where the tenant is an SME (broadly an entity with an annual turnover of less than $50mil) and is also eligible for the Federal ‘jobkeeper’ scheme.
What rent relief is available?
The Regulation sets out a process by which landlords and tenants can negotiate appropriate rent relief to consider the effects of the COVID-19 pandemic.
Either party may initiate the process by notice to the other. Once notice is given, the parties must exchange information to allow the other party to negotiate in a fair and transparent way (e.g. a statement by the lessee that demonstrates why the lease is an ‘affected lease’).
Within 30 days of receiving this information the landlord must offer a reduction to the rent which must:
- reflect all the circumstances of the lessee and the affected lease;
- provide for a rent waiver of at least 50% of the reduction;
- provide for a rent deferral of the balance of the reduction be amortised over a period starting on 30 September 2020, and ending at least 2 but not more than 3 years after that date.
What if parties do not agree?
If the parties do not agree to an appropriate rent reduction, either party may refer the matter to mediation. If, following mediation, the parties still cannot agree, either party may refer the matter to QCAT (or another competent court) for determination.
Even where the parties have agreed an appropriate reduction, tenants may also request a further rent reduction if a ground on which the agreement was reached has changed in a material way (e.g. the tenant’s income decreases substantially).
Extension of term
In addition, to allowing rent relief, landlords must also offer tenants an extension to their lease equal to the period of waiver/deferral of the rent.
This will not apply where the landlord can demonstrate that it needs the premises for a commercial purpose.
Can landlords take action against tenants for breach?
During the period commencing on 29 March 2020 and ending 30 September 2020 (Response Period), a landlord’s ability to take action against a tenant is significantly limited. Amongst other things, a landlord must not commence proceedings in relation to:
- recovering possession or terminating the lease;
- claiming on a bank guarantee or deposit for unpaid rent or outgoings; and
- the obligations of any guarantors under the lease.
Before contacting the other party to your lease, you should speak with us to discuss an appropriate negotiation strategy to take into account your particular circumstances.
It is important to properly protect your interests to ensure that you achieve the best possible outcome under the Regulations.
Call MBA Partner James Rayner to discuss your situation further on (07) 5539 9688 or email email@example.com