Update regarding commercial lease negotiations

Regulations to give effect to the National Cabinet mandatory code of conduct announced by Scott Morrison on 7 April 2020 have been released and taken effect in Queensland.

Generally speaking, the regulations provide that parties to “affected leases” are provided with additional rights.

An affected lease is any binding retail shop lease or lease of premises used wholly or predominately for business activities under which:

(a)       the lessee is an SME entity, i.e. has an annual turnover of less than $50,000,000.00; and

(b)       the lessee or, in some limited cases, an affiliate of the lessee) is eligible for the jobkeeper scheme.

The new obligations and rights include:

• A general obligation on the parties to act reasonably and in good faith between each in discussions and actions associated with mitigating the effect of the COVID-19 emergency;
• Restrictions on the rights of lessors to enforce and terminate leases and guarantees and securities provided under affected leases during the period 29 March 2020 to 30 September 2020;
• Deferral of rent increases under leases required during the period 29 March 2020 to 30 September 2020;
• Rights for lessors to reduce services to premises during any period of closure by a lessee;
• Mechanisms for the negotiation and renegotiation of rent reductions and waivers during the period 29 March 2020 to 30 September 2020 which include mediation and QCAT proceedings where there is dispute or enforcement is required.

Take aways 

•  Clarity of the rights of the parties and process to reach resolution has finally be released;
•  Clarity has now been given as to what financial information lessors and lessees are required to provide each other regarding their negotiations;
• Landlords can initiate the negotiation process and bring a tenant to account and ultimately procure resolution by QCAT order if a tenant has not been acting reasonably or in good faith or has simply been refusing to pay rent;
• Landlord’s can take their own circumstances into account in negotiation rental waivers and deferrals;
• Clarity has been given on the timing and term for payment of any deferred rent;
• An enforcement process exists for both parties in the event of any default on any negotiated outcome;
• Bank guarantees and security bonds are able to be held and used a security for payment of deferred rent;
• To avoid argument and the enforceability of the parties’ respective rights, any agreement regarding negotiated outcomes should be properly and appropriately documented between the parties
• The parties can make agreement outside the requirements of the regulations.

Ultimately, there is now finally some certainty for lessors and lessees regarding their respective rights arising from the announced of the National Cabinet mandatory code of conduct announced on 7 April 2020.

We have prepared and have ready low cost processes and documents to help bring lease negotiations arising under the regulations to a swift conclusion.  Should you require any assistance with any of the matters arising from the regulation of COVID19, please do not hesitate to contact us.

Written by Niall Powell, Special Counsel.

 A more detailed summery of the regulations can be downloaded here