Queensland – COVID-19 – Retail Shop Leases and Other Commercial Leases Regulation

The Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (QLD) (QLD Regulations) came into effect on 28 May 2020.

The QLD Regulations largely mirror similar laws introduced by other States and Territories to implement the National Cabinet’s Code of Conduct for commercial tenancies, however there are a number of important differences that QLD landlords and tenants will need to be aware of.

Who is an affected lessee?

The QLD Regulations apply to “affected lessees”, being a tenant under a commercial or retail lease where the tenant has a turnover of less than $50M and is eligible for JobKeeper.  For the purposes of the turnover test, if the tenant is an entity connected with (or an affiliate of) another entity it will be the aggregate annual turnover of those entities.

If an affected lessee breaches the lease by ceasing trade or not paying rent/outgoings (wholly or partly) during the period 29 March 2020 to 30 September 2020, a landlord is prevented from (amongst other things) doing or continuing the following actions:

  • evicting / re-entering / terminating
  • seeking damages
  • charging interest
  • drawing on lease security
  • enforcing a personal guarantee or indemnity in a lease

unless the landlord has made a genuine attempt to negotiate and the tenant has substantially failed to comply with the negotiation process.  Rent also cannot be increased during this period (except turnover rent).

Negotiation process

The QLD Regulations impose obligations on landlords and tenants to cooperate and act in good faith in all discussions and actions associated with mitigating the effect of the COVID-19 pandemic on each other.

Either party can trigger the renegotiation process and, once triggered, the parties must both give each other information relating to the request that is true, accurate and sufficient to enable the parties to negotiate in a fair and transparent way.

The QLD Regulations helpfully give examples of the information required, namely turnover information, evidence of JobKeeper eligibility and details of steps the tenant has taken to mitigate the effects of the pandemic.  A tenant may also apply for further rent reduction if circumstances materially worsen after an initial agreement is reached – but notably, they do not deal with the alternate scenario of circumstances improving for the particular tenant.  Landlords should consider this issue in reaching and documenting any agreement with tenants.

Differences in the QLD Regulations

One of the most critical changes the QLD Regulations impose is that landlords must offer tenants an extension to the term of the lease on the same conditions as those contained in the lease equivalent to the period for which rent is waived or deferred.  The only exception to this absolute obligation is where the landlord would be in breach of another legal obligation in doing so, or if the landlord demonstrates that the lease cannot be extended because it intends to use the premises for a ‘commercial purpose of the landlord’.

Some other interesting differences about the QLD Regulations when compared to other jurisdictions:

  • they expressly apply to agreements for lease where the lease has not yet commenced or come into effect
  • whilst the other jurisdictions have regard to the turnover of a franchise operation at the franchisee level, for the purposes of determining whether turnover is under $50M, the QLD Regulation go further and state that if premises are leased to a franchisor and then subleased to a franchisee who is an affected lessee, the franchisor is also treated as being an ‘affected lessee’
  • deferrals must be offered over a minimum period of 2 years (but no more than 3 years)
  • the landlord’s rights in respect of a security deposit are preserved until such time as the deferred rent has been repaid – albeit the position is silent on bank guarantees which may have expiry dates
  • there is a strict 30 day timeframe for the landlord to formally offer the tenant a reduction once the negotiation process has been triggered and a party has provided “sufficient information” about the rent relief request
  • there is a much more prescriptive mediation and dispute resolution process for any disputes