By Stephen Dickens, Partner, and Genevieve Hallam, Law Graduate
The Queensland Government introduces the COVID-19 Emergency Response Act 2020 (Qld): to help ensure fairness of dealings between parties to commercial tenancies
On 22 April 2020, the Queensland Government passed the COVID-19 Emergency Response Act 2020 (“the Act”) which came into effect on 23 April 2020.
The Act implements the National Cabinet Mandatory Code of Conduct: SME Commercial Leasing Principles during COVID 19 (“the Code”).
The objective of the Act is to ensure that landlords and tenants that have been impacted by the COVID-19 pandemic are negotiating in accordance with the good faith leasing principles to reach a mutually acceptable (balanced) leasing outcome during the crisis, and where such an outcome cannot be achieved it provides a dispute resolution process.
The Act provides the QLD Government with the power to make Regulations regarding commercial leases either under:
- the Act; or
- the Retail Shop Leases Act 1994
in response to the COVID-19 emergency.
These Regulations are expected to be made shortly.
The Act has force and effect force between 23 April 2020 and 31 December 2020, unless extended.
It is also expected there will be Regulations prescribing for significant penalties in the event of a failure to comply.
1. What constitutes “a relevant lease”?
The types of leases that are captured by the Act are:
- “retail shop leases” under the Retail Shop Leases Act; or
- a lease prescribed in the Regulation to at least be made under the Act.
It is anticipated that the new Regulations will prescribe a relevant lease as one where the tenant is a “small business” as defined under the Commonwealth Government’s JobKeeper programme.
To be within the meaning of “small business” the business must:
- have an annual turnover of $50 million or less;
- have experienced a 30% reduction in turnover; and,
- be eligible for the JobKeeper program.
Tenants will need to provide their financial records and prove their eligibility for the JobKeeper program to satisfy these criteria.
2. Application of the Act to landlords and tenants
The Act gives the Government the power to make Regulations that limit landlords’ rights under relevant leases. Essentially, the Government can prevent a landlord from:
- recovering possession of the premises from the tenant;
- terminating the relevant lease; and,
- exercising or enforcement of any other right under the relevant lease, or regulating the exercise or enforcement of such rights.
Specifically, in accordance with the principles set out in the Code, it is likely that the Regulations will:
- prohibit landlords from evicting tenants or terminating a lease for non-payment;
- prohibit landlords from increasing rent during the emergency period;
- prohibit landlords from penalising a tenant who stops trading or reduces opening hours;
- prohibit landlords from charging any interest on unpaid or deferred rent;
- prohibit landlords from making a claim on a bank guarantee or security deposit for non-payment of rent;
- require landlords to offer tenants proportionate reductions in rent payable in the form of waivers and deferrals; and
- require landlords to share any benefit they receive from their financiers due to deferral of loan payments with the tenant in a proportionate manner.
As well, the Code recommends that landlords should, where appropriate, look to waive recovery of expenses owing by a tenant under the lease terms during the emergency period.
The Act gives the government power to make Regulations that exempt tenants from particular legislative obligations either the lease or any other agreement relating to the lease. This will have the effect of relaxing obligations had by tenants during this emergency so as to accommodate for a significant reduction in turnover.
As well, it is recommended under the Code that tenants should be provided with opportunities to extend a lease for a period equivalent to any rent waiver or rent deferral.
However, under the Code tenants must remain committed to the terms of the lease (subject to any negotiated changes) and cannot terminate the lease.
3. Obligations when negotiating or disputing a matter under or in relation to the lease
The Act requires that parties are to have regard to “particular matters or principles, or a prescribed standard, code or other document” when negotiating or disputing a matter under or in relation to the relevant lease.
The Act refers to the Code and the leasing principles set out in the Code in relation to the need for both parties to act in good faith. In short, the parties are to act in good faith when negotiating a mutually acceptable leasing outcome. This is the objective of the Act, to provide the necessary framework to ensure that the parties to a relevant commercial lease adhere to the good faith leasing principles for negotiation.
The Act also requires that a mediator, conciliator, arbitrator, tribunal, court or other decision-maker have regard to the good faith leasing principles when dealing with or determining a commercial lease dispute.
If the parties cannot reach a mutually acceptable leasing outcome, as a direct result of the COVID-19 pandemic, the Act provides two possible dispute resolution processes. These are either:
- an informal mediation process; or
- a formal dispute resolution process.
This is a new dispute resolution process for small business tenancy disputes in Queensland during the COVID-19 crisis.
The Act gives the government power to regulate the framework of this new dispute resolution process, including as to:
- who may apply for dispute resolution;
- how the dispute resolution process is started;
- the appointment and jurisdiction of mediators to mediate disputes;
- the conduct of mediations;
- the conferral of jurisdiction on a tribunal to hear and decide disputes; and,
- the referral of disputes to a Court or Tribunal.
Where the parties apply for dispute resolution, the matter can be heard and decided by a Court or Tribunal.
The Act has established a Small Business Commissioner to deal specifically with these commercial leasing disputes through to 31 December 2020. The Small Business Commissioner, Maree Adshead, will:
- act as a single point of information and advice;
- provide an informal resolution for disputes relating to small business leases;
- administer a binding mediation process;
- increase the likelihood of small business non-residential lease disputes being resolved earlier; and
- avoid protracted negotiation, and additional costs.
The Act gives the QLD Government broad powers to regulate commercial tenancy arrangements during the COVID-19 pandemic. There are significant impacts for both landlords and tenants.
The general thrust is to have landlords and tenants share in a proportionate, measured manner, the financial risks and cashflow impacts during the COVID-19 emergency crisis period – with both parties in good faith balancing their own and each other’s interests.
For landlords, it is important to ascertain the financial position of the tenant and whether the tenant is eligible for the JobKeeper programme. If the tenant is a small business, then that will mean the landlord’s rights under the lease or other relevant agreement will be impacted.
For tenants, it is important to apply for the JobKeeper scheme and inform your landlord of your current financial position. If you meet the requirements to be a small business, then certain exemptions will apply to your obligations under the lease, relevant Act and or other agreement relating to the lease.
Parties need to adhere to the good faith leasing principles during negotiations and in or about dealing with disputes.
In circumstances where parties cannot reach a mutually acceptable outcome, then a party can apply for an informal mediation or undertake a dispute resolution process.
In saying that, the parties cannot use the dispute resolution process to prolong or frustrate the facilitation of amicable resolution outcomes. This ties up the need, again, to act and negotiate in good faith and to try to come to a balanced agreement as expeditiously as possible.
We expect most disputes will be able to be resolved amicably using the informal mediation process, but there will be some that will need to be determined by QCAT or a Court, depending on what is involved.
Mills Oakley’s Commercial Disputes team stands ready to assist, as and when necessary. Speed, though, will be of the essence.