COVID-19 Impact on Commercial and Retail Shop Leases

I know we are all thoroughly over COVID-19 and its devastating impact on small businesses particularly. 

Tenants of retail and commercial premises continue to suffer significant downturns in trade, putting untold financial pressure on their businesses and in many cases denying them sufficient income to pay their Landlords. 

On 28 May 2020 the Queensland Government implemented the necessary regulations to enable the COVID-19 Emergency Response Act 2020 to come into play in support of the Federal Government’s National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles (National Code). 

This legislation imposes a set of good faith leasing principles for application to commercial leases in response to the financial hardship being experienced by tenants due to business disruption, closures, restrictions on movement and social distancing due to the COVID-19 emergency.

The National Code and the State legislation apply to “affected leases under the State regulation”.  A lease of a premises is an “affected lease” if:

• It is a retail shop or a shop used for carrying on a business;
• On the commencement, the lease, or an agreement to enter into the lease, is binding on the Tenant (whether or not the lease has commenced);
• The Tenant under the lease is a small and medium enterprise entity under the Guarantee of Lending to Small and Medium Enterprises (Corona Virus Economic Response Package) Rules 2020 Commonwealth Section 5; and
• The Tenant under the lease, or an entity that is connected with or an affiliate of the Tenant and responsible for employing staff for the business carried on at the leased premises is eligible for the Commonwealth Job Keeper Scheme under the Commonwealth legislation.

The Regulation:

• Does not prevent parties from making their own arrangements but preserves a parties’ right to negotiate a condition of an affected lease;
• Requires the Landlord and the Tenant to cooperate and act reasonably and in good faith;
• Prohibits a Landlord from taking action such as recovery, termination of possession, charging interest on unpaid rent etc on the following grounds occurring during the COVID period –
  • A failure to pay rent;
  • A failure to pay outgoings;
  • Or the business carried on at the leased premises not being open for business during the hours required under the lease.
• Prohibits the Landlord from increasing the rent;
• Provides for how renegotiations of rent payable and other conditions are to initiated and conducted;
• Imposes requirements relating to deferred rent;
• Provides that if the rent under the lease is waived or deferred for a period, the Landlord must offer the Tenant an extension to the term of the lease for a period equivalent to the period for which the rent is waived or deferred;
• Allows the Landlord in the event that the Tenant is unable to operate a business at the premises during the COVID period to cease or reduce any services at the premises;
• Imposes an obligation of confidentiality in respect of any dispute between the parties;
• Imposes an obligation on the parties to cooperate and act reasonably in resolving any lease dispute;
• Provides for the Small Business Commissioner to refer lease disputes to mediation and establishes procedures for mediation;
• Provides for matters to be considered by a Court or Tribunal in the hearing and deciding of a lease dispute;
• Provides a general exemption for an act or omission of a Tenant under the lease, if the act or omission is required under a COVID-19 response measure or a law of the Commonwealth or State in response to the COVID-19 emergency;
• Stops or suspends proceedings or actions in relation to leases that are started in the pre-commencement period (i.e. the period before COVID-19 period commenced), but are unresolved, incomplete or not finalised prior to the commencement of the current regulation.

If you as a Landlord or a Tenant have been affected by COVID-19 and in the case of a Tenant are struggling to pay the rent and in the case of the Landlord are not being paid rent and require some guidance as to what you can do next, you should contact our office to discuss.