Update: Retail and Commercial Leasing in Queensland

Which leases does the Regulation affect?

The Regulation applies to “affected leases”. Subject to exception, “affected leases” are leases which meet all of the following criteria.

• The lease must be a lease of a retail shop, or, a lease of a premises which is wholly or predominately used for carrying on a business.

• The lease must have been binding between the landlord and tenant on 28 May 2020 (even if the lease had not commenced).

• The tenant must be a small or medium enterprise. That is, the tenant must have had an annual turnover less than $50 million in the financial year ending 30 June 2019 and must expect to have an annual turnover less than $50 million in the financial year ending 30 June 2020.

• The tenant (or an entity connected with the tenant carrying on the business within the premises in certain circumstances) must be eligible for the Jobkeeper scheme pursuant to the Coronavirus Economic Response Package Omnibus (Measures No.2) Act 2020. That is, the entity must have either carried on business within Australia at 1 March 2020, or have been a non-profit entity at that time and, importantly, must have experienced a reduction in turnover of at least 30%.

How long will the Regulation be in effect?

The Regulation was passed on 28 May 2020 and expires on 31 December 2020 (unless extended).

The rights and obligations of the parties to “affected leases” will apply during the “response period”. The “response period” is the period between 29 March 2020 and 30 September 2020 (unless extended).

What are the general obligations on landlords and tenants?

The Regulation requires landlords and tenants of “affected leases” to act reasonably and in good faith. It also requires the parties to keep personal information, business information or financial information of the other party confidential.

How does the Regulation affect the general rights of a landlord?

Prohibited Actions

Landlords of “affected leases” are prohibited from taking “prescribed action” as a result of specific acts or omissions of the tenant. In particular, a landlord cannot:

• terminate the lease;
• evict the tenant;
• recover possession of the premises;
• seek the payment of damages, interest, fees or charges in respect of unpaid rent or outgoings;
• call upon the tenant’s security (regardless of whether that security is a bank guarantee, cash deposit or guarantee); or
• otherwise enforce its rights under the lease or other agreement between the parties;

because the tenant:

• failed to pay rent and/or outgoings (in whole or in part) for the period between 29 March 2020 and 30 September 2020;
• failed to operate its business as required by the lease for the period between 29 March 2020 and 30 September 2020. 

The Regulation also provides that a rent review (other than rent based on turnover) has no affect until the “response period” ends.

Permitted Actions

The Regulation allows a landlord to take a “prescribed action” if doing so is in accordance with:

• a variation made to the lease under the Regulation;
• a settlement agreement or other agreement reached between the parties regarding rent, outgoings or the operating hours of the tenant;
• an order of a court or tribunal.

Furthermore, a landlord may take “prescribed action” if:

• the ground upon which the action is taken is unrelated to the effects of COVID-19;
• the landlord has made a genuine attempt to negotiate the terms of the lease in accordance with the Regulation, but the tenant has substantially failed to comply with its obligations (for example, if the tenant is not acting reasonably or in good faith).

What are the obligations of landlords and tenants with respect to renegotiating the lease?

If a tenant to an “affected lease” wishes to renegotiate the rent payable under the lease, the tenant must provide sufficient information to allow the landlord to consider its request. The Regulation provides some examples of sufficient information, including accurate financial information or statements about the tenant’s turnover. The Queensland Government has also provided examples of what information can be reasonably requested, which includes tax returns and business activity statements.

Within 30 days of the tenant requesting a variation to its rent (or some other condition of its lease) and providing sufficient information to the landlord, the landlord must submit an offer to the tenant which has regard to the following:

• all the tenant’s circumstances (including the tenant’s turnover reduction);
• the extent to which a failure to reduce the rent payable under the lease would compromise the tenant’s ability to comply with its obligations under the lease;
• the landlord’s financial position (including any relief provided to the landlord, such as payroll tax relief);
• any reduction (or waiver) of amounts payable under the lease in respect of outgoings (e.g. land tax relief, reduction in council rates).

The offer must satisfy the following criteria:

• Period of rent reduction: The period of the rent reduction must be no less than the “response period”.

• Application of rent reduction: Of the reduction offered, at least half is to be applied as a waiver (with the remaining percentage to be deferred).

• Repayment of the deferred rent: the landlord must not require the repayment of the deferred rent to commence until after the end of the “response period”. Unless otherwise agreed, the landlord must allow the repayment of the deferred rent to be amortised over a period of between 2 and 3 years. The Regulation prohibits the landlord from charging interest on deferred rent.

• Extension of term: Subject to exceptions, the landlord must offer the tenant an extension to its lease term equivalent to the period for which rent is waived or deferred. 

While a landlord is negotiating a rent deferral with its tenant, a prudent landlord would also seek professional advice as to the tax treatment of that deferral to avoid any unintended GST consequences and/or cash flow problems. For example, if the landlord accounts for GST on an accruals basis, the landlord may incur the GST liability prior to receiving money from its tenant.

What if the landlord and tenant cannot reach agreement?

The Regulation sets out detailed dispute resolution processes should a dispute arise between the parties which cannot be resolved.

Can the parties contract out of the Regulation?

Generally, landlords and tenants cannot contract out of the provisions and protections within the Retail Shop Leases Act 1974. However, the Regulation expressly allows the parties to enter agreements which are inconsistent with it (save for the dispute resolution provisions).

Additionally, the Regulation allows a party to such an agreement (or any agreement reached pursuant to the Regulation) to further re-negotiate the provisions of the lease if a ground on which the agreement is based materially changes.

This gives the parties the opportunity to reach tailored and flexible solutions.

If you have any queries in relation to this update, please reach out to RBG’s Property Team who will be more than happy to assist on (07 3009 9300) or admin@rbglawyers.com.au.