Queensland have legislated the laws for the Queensland Commercial Leasing Code of Conduct for the Covid – 19 period.  We have previously notified you regarding the National Mandatory Code of Conduct, which was released by the National Cabinet (the Code).

On Thursday 28 May 2020, the Queensland Government published the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (the Regulations). The enactment of the Regulations will provide businesses with more certainty as to their options and ability to negotiate.

When will the Regulations apply?

While the Regulations were only enacted last week, the provisions will apply from 29 March 2020 to 30 September 2020. In order, for the Regulations to apply, the Lease must satisfy the following criteria:-

1. The Lease must be for a retail shop or other commercial lease;
2. The Lease must be binding on the Lessee, whether or not it has commenced;
3. The Lessee must have predicted turnover likely to be less than $50 million and the previous year must have been less than $50 million; and
4. The Lessee must be eligible for the Government Jobkeeper program (suffering a downturn in revenue of 30% or more under various Government tests).

General Obligations and Prohibitions

The Regulations provide for a number of obligations and prohibitions in relation to the parties to a Lease. These are as follows:-

1. Cooperation – The parties must cooperate, act reasonably and in good faith in mitigating the effect of COVID-19 on the parties to the Lease.
2. Action against Lessee – The Lessor is prohibited from taking action against the Lessee during the relevant period (stated above) on the following grounds:-
   1. Failure to pay rent;
   2. Failure to pay outgoings; and
   3. Failure to operate the business during the hours required by the Lease.

However, is not prevented from taking action in the following circumstances:-

1. Where the action against the Lessee is in accordance with a variation made under the Regulations, a settlement agreement or an order of a court or tribunal.
2. Where the Lessee fails to comply with the regulations and negotiate with the Lessor.
3. On grounds not related to COVID-19.
4. Increasing Rent – The Lessor is prohibited from increasing the rent during the period prescribed by the Regulations.

 

Negotiation in Good Faith

To commence the negotiation of a variance to the Lease, a party may send a written request to the other party. As soon as possible after the request is made, the parties must exchange information that allows the parties to negotiate in a fair and transparent way.  This applies to both sides. Practically, this will mean that the Lessee will provide information necessary to assess whether the Regulations apply. For example, financial statements to prove the reduction in turnover or statements from the government confirming eligibility for Jobkeeper.

Within 30 days after the parties exchange sufficient information, the Lessor must make an offer to the Lessee regarding the rent payable. This must have regard to the following:-

1. All the circumstances of the Lessee and the affected Lease, including the reduction in turnover of the business carried on at the leased premises during the response period;
2. The extent to which a failure to reduce the rent payable under the Lease would compromise the Lessee’s ability to comply with the Lessee’s obligations under the Lease, including the payment of rent;
3. The Lessor’s financial position, including any financial relief provided to the Lessor as a COVID-19 response measure; and
4. If a portion of rent or another amount payable under the Lease represents an amount for land tax, local government rates, statutory charges, insurance premiums or other outgoings—any reduction in, or waiver of, the amount payable.

Following the offer, the Lessee and the Lessor must cooperate and act reasonably and in good faith. Once an agreement is concluded, the conditions must be given effect by:-

1. A variation to the Lease; or
2. Another agreement between the parties that gives effect to the matters agreed.

Terms of the Agreement

The Regulations provide for the following in relations to the terms of the agreement.

Waiver of Rent – Any offer must provide for at least 50% of the rent reduction to be in the form of a waiver.

Deferred Rent – Where rent is deferred, the agreement:

1. Must not require payment until after the response period;
2. Must require payment to be amortised over a period of at least 2 years, but not more than 3 years; and
3. Must not require the payment of a fee, charge, or interest in relation to deferred rent, unless the lessee fails to comply with the conditions of the rent deferral.

Extensions – The Lessor must offer an extension to the Lessee that represents the equivalent period for which the rent is waived or deferred. The exception being where the Lessor is unable to offer an extension where the Lessor is under a legal obligation the prevents an extension of the Lease. For example, another Lease has been agreed to with an alternative Lessor, or the premises are being sold with vacant possession. Another exception is where the Lessor intends to use the premises for their own purposes following the end of the Lease.

Reductions in Services – If the Lessee is unable to operate their business, then the Lessor may cease or reduce services where reasonable and subject to any reasonable request of the Lessee.

 

Confidentiality – The parties are under a strict obligation to keep the information exchanged during the negotiation process confidential. This includes information provided by the Lessee regarding the finances of the business or information regarding trade. The parties are unable to use this information for any reason but for the negotiations under the Regulations.

 

Dispute Resolution – If parties can’t reach a settlement

 

Prior to commencing the dispute resolution process under the Regulations, the parties must attempt to resolve the dispute. In attempting to resolve the dispute, the parties must cooperate and act reasonably and in good faith. If there is a dispute resolution procedure under the lease, the parties may follow that procedure. However, the Regulations provide that the procedure under the Lease is not compulsory to proceed to dispute resolution under the Regulations.

Mediation

If the parties are unable to resolve their own disputes, then they may give notice of the dispute to the Small Business Commissioner (SBC). After the notice of dispute is received, the SBC must appoint a mediator and give written notice to the parties. The mediation must be conducted within 7 days of notice being given by the SBC to the parties.

A party may be represented at the mediation by an agent. However, a party can only be represented by a lawyer with the approval of the mediator. The parties must attend the mediation unless the party has a reasonable excuse. A court or tribunal may make any adverse costs order to a party that does not attend mediation.

If the mediation is successful, then a settlement agreement must be recorded in writing and signed by the parties. Following the completion of the mediation, the mediator must give the parties notice of the outcome and inform the SBC.

Application to QCAT

A party may make an application to the Queensland Civil and Administrative Tribunal (QCAT) where:-

1. A settlement agreement cannot be reached;
2. A party does not attend a mediation conference without a reasonable excuse;
3. The dispute is not settled within 30 days after a dispute notice is given to the SBC; or
4. Non-compliance with a settlement agreement.

The application to QCAT must be made within 6 months of the end of the Lease or the last day that the Lessee was required to pay deferred rent. QCAT may make orders it considers to be just to resolve the dispute. Examples of such orders are:-

1. An order regarding the rent payable in the response period;
2. An order giving effect to a settlement agreement;
3. An order setting aside a settlement agreement;
4. An order requiring that a party do or not do a particular thing; or
5. An order requiring the payment of compensation.

However, QCAT will not be able to hear a matter where:-

1. The dispute is subject to retail shop lease arbitration;
2. Is before or has been decided by a court;
3. Is related to premises that is use for a service station; or
4. The value or damages are more than $750,000.

 

Moving forward – We’re here to help

We consider that the Regulations strike more of a balance between the rights of the Lessor and the Lessee. It also provides more certainty as to the dispute resolution process than the Code or the NSW Regulations.

If you are in a dispute with your Lessor or Lessee and need assistance, please contact us. Our Lawyers are up to date with the provisions of the Regulations and are well placed to assist you with your Lease dispute.