THE END OF THE COVID-19 REGULATION PROTECTION FOR COMMERCIAL LEASES
On 28 May 2020, the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (“the Regulation”) was passed to mitigate the effects of the COVID-19 emergency on Tenants and Landlords and to establish a process for resolving tenancy disputes.
The Regulation generally gives effect to the National Cabinet Mandatory Code of Conduct. Unlike the Code of Conduct which provided that Tenants could negotiate rent relief for the pandemic period plus a reasonable recovery time, the Regulation effectively offers relief during period of 29 March 2020 to 30 September 2020. (“response period”) The relief offered under the Regulation during the response period was further extended commencing from 1 October 2020 to 31 December 2020(“extension period”). During the response and the extension period a Landlord was unable to take a prescribed action against an affected Lease.
Although the Regulation is still in effect until the COVID-19 legislation expiry day, this is only to facilitate dispute resolution processes and does not extend the response period or extension period under the Regulation beyond 31 December 2020, pursuant to the COVID-19 Emergency Response and Other Legislation Amendment Bill 2020 – Human Rights Statement of Compatibility.
What does this mean for you?
As a Landlord, you will now be entitled to take a prescribed action against a Tenant for failing to pay rent or outgoings or if they fail to open. A prescribed action relates to the following situations:
- Recovery of possession;
- Termination of the Lease;
- Eviction of the Tenant;
- Exercising a right of re-entry to premises;
- Seizure of any property, including for the purpose of securing payment of rent;
- The payment of interest on, or a fee or charge relating too, unpaid rent or outgoings;
- A claim on a bank guarantee, indemnity or security deposit for unpaid rent or outgoings;
- The performance of an obligation by the Tenant or another person under a guarantee under the Lease; and
- Exercising or enforcing another right by the Landlord under the Lease or other agreement relating to the Leased premises.
If rent was due to be increased during the response or extension period, as of 1 January 2021 you will be able to increase the rent accordingly. You will also be able to seek payment for any rent that was deferred during the response or extension period, this does not include the amount that the rent was due to be increased by, as the increased rent technically did not commence until 1 January 2021.
As indicated above, the Landlord is now able to increase the rent, seek payment of any deferred rent and can take a prescribed action against you for failing to pay rent, outgoings or failing to open.
Deferred rent can be repaid by instalments, using a method both parties agree to and can be paid off over at least 2 years but not more than 3 pursuant to s17 of the Regulation. Further, under s17(3) of the regulation the Landlord is entitled to retain the security deposit until the deferred rent has been repaid. However, if you are complying with the repayment condition, the Landlord must not charge interest or any other fee the on deferred rent.
Under s18 of the Regulation, the Landlord must offer the tenant an extension on the term of the Lease on the same conditions, as those contained in the lease except that the rent payable during the extension must be adjusted based on amount of rent that was waived or deferred. Any extension period provided under this section of the Regulation, must be equivalent to the period which rent is waived or deferred. (Six (6) months for response period and three (3) months for extension period)
However, under s18(4), there is circumstances where this section does not apply, an example being where the Lease cannot be extended due to the Lessor intending to use to the leased premises or where they intend to sell the property and the purchaser requires vacant possession.
The Queensland Small Business Commissioner (“QSBC”) have indicated that during negotiations, both parties must cooperate, act reasonably and in good faith to make a genuine effort to reach an agreement. As a Landlord or a Tenant, if you have made genuine attempt to resolve any dispute, you may be able seek dispute assistance from the QSBC, who provide free mediation for eligible small business tenancy disputes and affected leases.
If the Lease expired during the response or extension period, then the Landlord is not obliged to renew the Lease and is entitled to terminate the Lease accordingly. If you wish to renew the Lease, it will need to be negotiated between the parties.
These matters under the COVID Acts and Regulations are difficult and complex and if you are a Landlord or a Tenant and require assistance with a dispute, please call our office on 07 5444 4750 or email [email protected] between 8:30am and 5:00pm, Monday to Friday to speak with one of our experts.