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The National Cabinet released the Mandatory Code of Conduct – SME Commercial Leasing Principals During COVID-19 (Code) in early April 2020. The Code set out several principles for negotiating the provisions of commercial, retail and industrial leases affected by COVID-19. On 28 May 2020, the Queensland Government passed the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Regulation). Although the Regulation reflects the Code in some respects, it departs from the Code in others.
The Regulation provides certainty to both landlords and tenants as to their rights and obligations, although it is less restrictive than Code. We discuss the impact the Regulation below.
The Regulation applies to “affected leases”. Subject to exception, “affected leases” are leases which meet all of the following criteria.
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).
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.
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:
because the tenant:
The Regulation also provides that a rent review (other than rent based on turnover) has no affect until the “response period” ends.
The Regulation allows a landlord to take a “prescribed action” if doing so is in accordance with:
Furthermore, a landlord may take “prescribed action” if:
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:
The offer must satisfy the following criteria:
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.
The Regulation sets out detailed dispute resolution processes should a dispute arise between the parties which cannot be resolved.
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 firstname.lastname@example.org.