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With each state and territory taking a different approach to introducing the new Commercial Leasing Code of Conduct in the wake of COVID-19, Commercial Litigation Lawyer, Georgia Taylor, discusses Queensland’s approach to the regulations.

 

On 28 May 2020, the Queensland Government passed regulations which legislate the principles of the National Cabinet Mandatory Code of Conduct (Code) announced by the Federal Government on 6 April 2020. The Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (QLD Regulation) has been enacted pursuant to the powers of the COVID-19 Emergency Response Act 2020 (Act).

The Regulation has taken the Queensland Government over five weeks to put into place since passing the COVID-19 Emergency Response Bill 2020 on 22 April 2020. Unfortunately for most Queenslanders, this code is too little too late. Struggling tenants and landlords were left with an ambiguous code, and little knowledge of when (and how) any dispute resolution procedure would come into play. While the moratorium on evictions has assisted tenants and provided some surety, it hasn’t stopped the bills piling up and leaving affected parties in angst. Queensland was the second last of the states and territories to legislate these regulations.

Purpose of the Regulation

The purpose of the QLD regulation is to mitigate the financial effects of the COVID-19 pandemic on tenants and landlords under ‘affected leases’ by giving effect to the good faith leasing principles set out in the Code and to establish a process for any disputes.

What is an ‘Affected Lease’ covered by the QLD Regulation?

The QLD Regulation applies to leases covered by the Code, with some exceptions. The covered leases are retail and commercial leases to tenants with a turnover of less than $50 million and who qualify for the JobKeeper subsidy. The excluded leases are some farming businesses and certain leases under the Land Act 1994 (QLD) from a government entity within the meaning of the Land Regulation 2009 (Qld).

What is the ‘Response Period’?

Response Period means the period:

(a) starting at the beginning of the day on 29 March 2020; and
(b) ending at the end of the day on 30 September 2020.

Obligations for Negotiating Outcomes

The QLD Regulation prescribes obligations and places restrictions on both tenants and landlords, referred to as a Prescribed Actions:

QLD have defined a prescribed action as:

  1. recovery of possession
  2. termination of a lease during the Response Period for non-payment of rent and outgoings (confirming the moratorium).

The process for commencing negotiations between the tenant and landlord can be summarised as follows:

  • One party gives a notice to start negotiations (the initiator);
  • Both parties must as soon as practicable make full and frank disclosure of relevant information;
  • The landlord has thirty days to make an offer to the tenant. The thirty days starts from when both parties have provided the full and frank disclosure of relevant information; and
  • The parties must negotiate in good faith.

The disclosure that a tenant is required to make to the landlord is not burdensome, however, it does include financial statements about the turnover of the tenants business, evidence of eligibility for Job Keeper payments, and also steps the tenant has taken to mitigate the effect of COVID-19 on its business, to name a few.

The landlord must:

  • offer a rent reduction which waives at least fifty percent of the portion of the rent that has been reduced;
  • consider all circumstances of the lease including the reduction in turnover for the premises; and importantly
  • consider the capacity of both parties to be able to financially manage the effects of the COVID-19 emergency.

A reduction in rent and any conditions to the reduction, may be given effect by a variation to the lease or another agreement that gives effect to the matters agreed upon.

Dispute Resolution Process

The QLD Regulation provides a dispute resolution process (which was referred to in the Code) if the parties fail to reach an agreement. The first step in the dispute resolution process is a mediation. A party to the affected lease must give a Dispute Notice to the small business commissioner. It is important to note that the commissioner may dismiss the dispute if the parties have not acted in good faith or the commissioner considers the dispute to be frivolous or vexatious.

Once the small business commissioner has confirmed the party’s eligibility to participate in a mediation, a mediator will be appointed and a notice including the details of the mediator, time and date of the mediation will be conducted. It will be held no less than 7 days after the issuance of the dispute notice.

If the parties are unable to resolve the dispute through mediation, the matter can be taken to the Queensland Civil and Administrative Tribunal (QCAT) for resolution. QCAT have the necessary powers to make orders to give effect to the expectations set out in the Code. It is important for parties to note the time limitations imposed by QCAT to make an application as well as the effect of the binding nature of any orders made. You should seek independent legal advice in relation to the strict time limitations.

Your next steps

No matter your current position, if you qualify for relief under the QLD regulation, it is important that you are proactive and take the necessary steps explained to commence negotiations with your landlord or tenant.

The legislators have made allowances for those parties who can’t agree and who will need a third party to enforce their respective rights. With likely thousands of eligible applicants, many of those under financial strain, we expect a high volume of cases to be referred to the dispute resolution process. Likely to have some growing pains, the QLD dispute resolution process will be stretched, so it’s important to start your negotiations as soon as possible.

To be ready for your negotiations, you should have available (where applicable):

  1. A copy of the lease;
  2. Job Keeper acceptance;
  3. Proof of turnover;
  4. Financial records proving downturn in turnover (monthly would be appropriate);
  5. Proof of government and financial institution concessions (e.g. mortgage stops and land tax deductions);
  6. Proof of payments made from the date of the pandemic.

How can Attwood Marshall Lawyers help?

The QLD and NSW Regulations brings some much-needed certainty for tenants and landlords. The Regulation provides a pathway for parties to negotiate in good faith and move forward in uncertain times. However, our experience is that both landlords and tenants are struggling to properly understand the legislation and there are many grey areas in how all issues are to be resolved. It is important that both sides understand the impact COVID-19 has on all concerned and do their best to achieve an outcome that everyone can live with. All businesses and tenancies are different, as are the leases involved, and many will have their own unique issues. There is no “one size fits all” solution.

Want to know what is happening across the border? See our blog on the NSW legislation here.

Whilst there are restrictions on legal representation during the formal processes, it is imperative for parties to obtain their own legal advice and guidance. Our experienced Commercial Litigation lawyers can provide you with expert independent legal advice about your specific circumstances as a tenant or landlord. Attwood Marshall Lawyers can review your lease, negotiate on your behalf, settle disputes or take legal actions if your rights are compromised.

For more information or to discuss your circumstances, please contact our Commercial Litigation Department Manager, Amanda Heather, on direct line 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071.

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Georgia Taylor

Georgia Taylor

  • Lawyer
  • Commercial Litigation
  • Direct line: 07 5506 8253
  • Mobile: 0423 842 969