Commercial Leases and COVID-19

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Posted by: | Date: 2 July 2020

If you are a tenant facing difficulties due to the pandemic, or a landlord being approached by a tenant, the first step should still be communication, as I mentioned in my post on 25 March 2020 HERE.

The Queensland state government has now enacted the COVID-19 Emergency Response Regulation, applying to landlords and tenants of retail and commercial Leases.

The Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (“the Regulation”) enforces the April 2020 National Mandatory Code of Conduct (“the Code”) which is HERE.

In summary, under the Code, relevant tenants:

  • 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, leaving the rest to be deferred)
  • may not have their rent increased
  • may not be penalised for reducing trading hours or not opening
  • may not have a claim made by their landlord on a bank guarantee or security deposit for unpaid rent or outgoings.

The Regulation only applies until 31 December 2020.

The Regulation can be ignored if parties are capable of reaching agreement between themselves. We are finding that most landlords and tenants are reaching agreement guided by the Code.

However, if agreement cannot be reached, the Regulation’s rules can be imposed by a dispute resolution process.

Which Leases fall under the Regulation?

The Regulation does not apply to all commercial leases? It covers Leases with these elements:-

a) Retail Shop Lease or lease for a tenant carrying on its business; AND

b) Lease was in place as at 28 May 2020; AND

c) The leased premises are the tenant’s business premises; AND

d) The tenant’s business has a turnover of less than $50 million dollars per year; AND

e) The tenant is adversely affected by the COVID-19 pandemic; AND

f) The tenant is eligible for JobKeeper.

When can I apply the Regulation?

For eligible leases, the “response period” under the Regulation is 29 March 2020 – 30 September 2020. The earlier the negotiation process begins, the better it is for the parties.

What does the Regulation do?

A tenant enduring financial hardship due to the pandemic may ask the landlord for temporary rent relief. A landlord may also approach the tenant and offer to help.

The landlord and tenant must continue to comply with the lease in full, until either an agreement is reached or a dispute is finalised. In practice, we are seeing that it is common for immediate relief in some form to be granted by the Landlord, and the finer details are worked out later.

The Regulation requires the parties to cooperate and act reasonably in their negotiations resolving any lease issue related to the pandemic. Accurate information must be given to enable the landlord and tenant to negotiate fairly.

If negotiations break down, the tenant may apply to QCAT or another Court, for an order enforcing the Regulation against the landlord.

Information from Tenant

A landlord only has to act once a written request and requested supporting documentation has been received from the tenant.

information requested from a tenant can include:

  • Accurate financial information verifying the turnover of the business, and calculated in accordance with the Jobkeeper turnover test
  • Information showing that the tenant is an eligible entity;
  • Evidence of the tenant’s eligibility for JobKeeper;
  • Information on any other assistance being received or applied for by the tenant, and other steps taken to mitigate the effect of COVID-19 on the business

FC Lawyers are experienced in negotiating leases for landlords and tenants, and can help with leasing issues arising because of the COVID-19 pandemic.

Contact our team today if you have any concerns with your commercial leases.

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