It has been a hugely disruptive and worrying time with the challenge of the COVID-19 Virus and the subsequent effects of lock down. There is no better time to check your legal position. Every aspect of our lives and our economy have been turned upside down. Rapid Government announcements and fundamental changes to our laws have been rolled out in a short time. Our clients are concerned about a range of issues from commercial agreements being frustrated, employment rights, settlements for residential or commercial property sales and new rules for dealing with tenancies. Here are some basic details for business and owners and investors.
The National Cabinet agreed that states and territories would implement the mandatory Code of Conduct (the Code), including via legislation or regulation as appropriate, to implement the principles agreed on Friday 3 April.
The purpose of the Code is to impose a set of good faith leasing principles for application to commercial tenancies (including retail, office and industrial) between owners/operators/other landlords and tenants, in circumstances where the tenant is a small-medium sized business (annual turnover of up to $50 million) and is an “eligible business” for the purpose of the Commonwealth Government’s JobKeeper programme.
National Cabinet agreed that there would be a proportionality to rent reductions, based on the tenant’s decline in turnover, to ensure that the burden is shared between landlords and tenants. The Code provides a proportionate and measured burden share between the two parties while still allowing tenants and landlords to agree to tailored, bespoke and appropriate temporary arrangements that take account of their particular circumstances.
Our strongest advice is get advice before you sign any document and ensure all variations are formally documented and registered.
National Cabinet again noted that it expects Australian and foreign banks along with other financial institutions operating in Australia, to support landlords and tenants with appropriate flexibility as they work to implement the mandatory Code. We caution clients to check carefully the terms of approval continue to apply before reliance on the documents issued prior to COVID-19. Off the plan contracts and business covenants in loans require special attention.
The Commonwealth Government is also acting as a model landlord by waiving rents for all its small and medium enterprises and not-for-profit tenants within its owned and leased property across Australia. Check carefully if this applies and to what extent.
The Rent Relief Policy will include a mutual obligation requirement on the small and medium sized enterprises and not-for-profit tenants to continue to engage their employees through the JobKeeper initiative where eligible, and if applicable, provide rent relief to their subtenants. Check how the exchange of information will occur and eligibility will be documented between the parties.
You must follow the national guidelines and should record any option you decide on including:
An agreement to waive the tenant’s obligation to pay rental for a period under the Lease which cannot be revoked;
An agreement to reduce the rental payable by the tenant for the relevant period as a variation to Lease;
An agreement to defer the rental or outgoings payable by the tenant
An agreement to waive, reduce or defer the rental and outgoings payable is for a fixed term or a variable period or conditional on the Government lifting or changing a lock down period
Agreement to waive al rights for non-performance under the lease or comply with obligations for a fixed or variable period
Include tax and GST consequences for invoices issued and GST paid or payable
Consider how this affects assignment of a lease
Consider any security around obligations for tenants
Consider consent of financier secured over premises needing to consent to the agreement
Include a practical working example of how the changes work
The Act is similar to the emergency powers passed in other states in that it enables regulations to be passed prescribing limits on landlords’ and tenants’ rights. The key difference is that the Act has been passed after the Code was issued and therefore includes specific provisions referencing Code principles. The regulation-making power is broad as it allows for regulations to be made under both the Act itself or the Retail Shop Leases Act 1994 (Qld) in relation to a “relevant lease” in response to the COVID-19 emergency. Careful documentation must be prepared and signed to record accurately any agreement. If it is a registered lease, then register the variation and extension of term.
Part 7 of the Act deals with retail and other prescribed leases (but not residential leases which are dealt with in Part 8). A relevant lease for the purpose of that Part is a retail shop lease under the Retail Shop Leases Act 1994 (Qld) or a “lease prescribed by regulation”. A lease includes any agreement under which occupancy rights are granted (except for residential leases).
By defining relevant leases in this way, the Act leaves open the categories of leases that may be affected by the regulations: the underlying Code leasing principles may have an application to a broader range of tenancies than was initially contemplated by the National Cabinet. Like the Code, Part 7 of the Act has a tenant focus. It allows regulations to be made which:
prohibit lessors from recovering possession of premises
prohibit lessors from terminating a lease
regulate or prevent the exercise or enforcement of another right of a lessor
exempt a lessee (or class of lessees) from the operation of a provision of an Act, lease or other agreement relating to the premises
require parties to have regard to principles or a code in negotiating or disputing matters
require mediators to have regard to principles or a code when mediating
provide for a dispute resolution process
prescribe other matters necessary to facilitate the above
provide for a maximum penalty of 20 penalty units for a breach of the regulation.
Any regulation made under the Act can have retrospective application to 23 April 2020 and expires on 31 December 2020. Depending on the time taken for the current “lock down” measures to be relinquished, the regulations have the potential to regulate landlord and tenant conduct well after businesses have resumed normal operations.
Part 6 of the Act provides for the appointment of a Small Business Commissioner to provide dispute resolution support for small businesses including mediation for tenancy disputes.
These regulations require certain forms and procedures to be followed strictly when dealing with issues between Landlords and tenants and specific advice must be obtained in each case.
You may be eligible for one or more of a range of payroll tax relief measures as a result of the impacts of coronavirus (COVID-19).
refunds of payroll tax for 2 months
a payroll tax holiday for 3 months
deferral of paying payroll tax for the 2020 calendar year.
As part of this relief package, the refund and payroll tax holiday do not have to be repaid.
If you are an employer (or part of a group of employers) who pays $6.5 million or less in Australian taxable wages, you may have received an email about a:
refund of your payroll tax for 2 months (November and December 2019)
payroll tax holiday (i.e. no payroll tax to be paid) for 3 months (January to March 2020).
You can also apply for a deferral of payroll tax for the 2020 calendar year. (If you have already applied for a deferral, you do not need not reapply – it will be extended.)
If you are an employer (or part of a group of employers) who pays more than $6.5 million in Australian taxable wages and have been negatively affected (directly or indirectly) by coronavirus, you can apply for a:
deferral of payroll tax for the 2020 calendar year (If you have already applied for a deferral, you do not need not reapply – it will be extended.)
refund of your payroll tax for 2 months (January and February 2020).
You may be eligible for one or more of the following land tax relief measures:
a land tax rebate reducing land tax liabilities by 25% for eligible properties for the 2019-20 assessment year
a waiver of the 2% land tax foreign surcharge for foreign entities for the 2019-20 assessment year
a 3-month deferral of land tax liabilities for the 2020-21 assessment year.
You do not need to apply for the foreign surcharge waiver or the 3-month deferral. OSR will reassess land tax to apply the waiver and provide a refund where the assessment amount has already been paid.
However, you will need to apply for the land tax rebate. You may be eligible for the land tax rebate if at least one of the following circumstances applies to you.
You are a landowner who leases all or part of a property to one or more tenants and all the following apply.
The ability of one or more tenants to pay their normal rent is affected by the coronavirus (COVID-19) pandemic.
You will provide rent relief to the affected tenant(s) of an amount at least commensurate with the land tax rebate.
You will comply with the leasing principles even if the relevant lease is not regulated.
You are a landowner and all the following apply.
All or part of your property is available and marketed for lease.
Your ability to secure tenants has been affected by the COVID-19 pandemic.
You require relief to meet your financial obligations.
You will comply with the leasing principles even if the relevant lease is not regulated.
If you are eligible for the land tax rebate under both the above circumstances, it is expected you will apply the rebate firstly to provide rent relief to your residential or commercial tenants. You can then apply any remaining rebate to your own financial obligations (e.g. in relation to debt and other expenses).
The land tax rebate will only apply to each property that meets the above eligibility requirements and conditions, rather than the rebate applying to entire taxable landholdings.
Where there are multiple tenants for a single property, including mixed-use developments, if the eligibility requirements and conditions are met for at least one tenancy, then the whole property is eligible for the land tax rebate.
The land tax rebate does not need to be repaid if the eligibility requirements and conditions are met.
You can apply for the land tax rebate up to 30 June 2020.
You need to create or log into your account with Office State Revenue to apply.
Other support for business announced by Queensland Government
Relief for businesses renting government premises.
$500 rebate on electricity bills for all Queensland small and medium sized businesses that consume less than 100,000 kilowatt hours. This will be automatically applied to electricity bills.
Liquor licensing fees waived for business impacted by enforced safety industry shutdowns.
Industry Support Package
The Industry Support Package will assist large businesses through this period to ensure they will be able to scale up and service the community when economic activity improves.
For further detail on the Industry Support Package email covid19ISP@treasury.qld.gov.au
Commercial Transactions and Agreements
Consider getting specific advice before signing any Contracts and including a COVID-19 Clause to cover changing circumstances.
The COVID-19 Pandemic and government responses may have a significant impact on commercial transactions, including due to closures and reduced availability of some parties solicitors, accountants, financial institutions, titles office, search providers and franchisors. It may also trigger changes to the views, attitudes and positions of key parties in relation to some transactions. These things may be outside the control of the parties to the transaction and may not be foreseeable.
Throughout the duration of the COVID-19 Pandemic and government responses:
Key steps or conditions in relation to a transaction may not be able to be achieved or may be significantly delayed. This may include usual steps like – engaging third parties, doing inspections, undertaking searches, obtaining certificates, signing documents, transferring funds, obtaining consents and approvals, handing over possession of documents / business assets, passing company resolutions and updating registers and business records]. Transaction parties do not usually have a general right to extend time merely because a key step cannot be undertaken or is delayed, unless their particular transaction documents provide for the same.
Many financiers will reserve the right to withdraw from their commitment at any time prior to advancing funds for any number of reasons. Those reasons might include changes to the party’s personal financial circumstances, or other material adverse events in the wider commercial environment
In cases where a finance approval is withdrawn, or sufficient finance is otherwise unavailable, the relevant party may still be obliged to proceed with the transaction if the transaction document is binding and is no longer conditional on appropriate conditions. If this happens and the party does not have sufficient funds to proceed, then the counterparty may seek to terminate the transaction or seek to have the transaction specifically performed. In both instances, the counterparty may also seek to claim compensation (such as loss of profits and other damages, which may be significant). Our strongest recommendation is to have a COVID-19 clause in every agreement to cover an extension or termination where affected and perhaps a force majeure clause.
Please also consider this proposed transaction in light of the duties of your directors to act in good faith, in the best interests of the company and with due care and skill.
In these uncertain times you may consider not proceeding with the transaction at all. Alternatively, you may consider undertaking further due diligence and/or asking us to seek to include targeted clauses in the transaction documents to attempt to minimize the risks to you.
There may also be greater uncertainty and unpredictability around whether a party will ultimately be able to satisfy conditions, obtain any necessary consents or approvals, and do other things required for the transaction to successfully proceed. Asset values, trading conditions and market outlooks may also change rapidly and without notice.
Insolvency Laws Safe Harbour from Director Liability
First, there needs to be a clear understanding of the precise nature of the solvency of the entity. Solvency goes principally to the company’s working capital and cash flow position. Is this a temporary liquidity crisis, triggered by what are temporary challenges to supply chain, or has this exposed an existing and potentially fatal weakness in the company’s financial position and prospects?
Second, to secure the benefit of safe harbour, the directors must actually be developing courses of action that are reasonably likely to lead to the better outcome. Relevant factors here include obtaining advice from an appropriately qualified advisor, who is given enough information to give appropriate advice, and the development or implementation of a restructuring plan.
Third, there are gateways which need to be satisfied before safe harbour can be relied on, including the payment of all employee entitlements, by the time they fall due and the maintenance of appropriate taxation records.
Statutory personal/carer’s leave and COVID-19-when is it payable
Paid statutory personal leave is a minimum employment standard for all national system employees, with the exception of casual employees, under the National Employment Standards (NES) in the Fair Work Act 2009 (Cth) (FW Act).
To qualify for paid statutory personal/carer’s leave, an employee must be absent from work due to the employee either:
Not being fit for work because of personal illness or injury affecting the employee. In practice, this element of paid statutory persona/carer’s leave is often referred to as sick leave or personal leave and could be used by employees who are suffering the effects of a COVID-19 infection.
Providing care or support to a member of the employee’s immediate family or household who requires care or support due to a personal illness or unexpected emergency affecting the family or household member. In practice, this element of paid statutory personal/carer’s leave is often referred to as carer’s leave, and could be used by employees who:
are caring for family or household members who are suffering the effects of a COVID-19 infection; or
are caring for children who have unexpectedly been sent home due to day care or school closures resulting from the COVID-19 pandemic (noting as at 18 March 2020 the position of all levels of government was to not close schools, see What restrictions have been imposed by the government in response to COVID-19?). Note that the eligibility for this form of paid personal/carer’s leave is an unexpected emergency, and arguably would not cover a situation where the employee was on notice of impending or potential day care or school closures.
Under the NES, full-time and part-time employees accrue ten days of paid personal/carer’s leave per year, paid at the base rate of pay for their ordinary hours of work, and accumulating from year to year. The entitlement is limited to the number of days an employee has accrued, meaning at any given point an employee may have more or less than ten days of paid personal/carer’s leave available.
Assuming the employee is not fit for work because of personal illness or injury or cannot attend work due to providing care or support to a member of their family or household and meets the notice and evidence requirements for taking leave detailed in the FW Act, the employee can use all of their accrued personal/carer’s leave balance.
In what circumstances is unpaid personal/carer’s leave, and compassionate leave, available?
Unpaid statutory personal/carer’s leave, and statutory paid or unpaid compassionate leave, is a minimum employment entitlement under the NES and available to all national system employees, including casual employees
There is no entitlement to unpaid carer’s leave if paid personal/carer’s leave is available to the employee.
Like paid personal/carer’s leave, the entitlement to unpaid carer’s leave is triggered for each occasion that a member of the employee’s immediate family or household requires care or support due to a personal illness or unexpected emergency affecting the family or household member. Employees are entitled to two days unpaid carer’s leave for each permissible occasion.
Compassionate leave is paid leave except for casual employees, who take compassionate leave as unpaid leave. The entitlement to compassionate leave is triggered when a member of the employee’s immediate family, or a member of the employee’s household, contracts or develops an illness, sustains an injury that poses a serious threat to their life or dies. Employees are entitled to two days paid or unpaid carer’s leave for each permissible occasion.
Where an employee refuses to attend work due to fears about COVID-19, what action can an employer take and what pay are they entitled to?
If the employee can work from home, this may well resolve the issue.
If not, the employer would need to consider the public health advice, the specific reason that the employee is concerned about attending the workplace, and whether it would be discriminatory to refuse working from home, take disciplinary action or withhold pay in light of the employee’s refusal.
We consider some of the potential forms of discrimination include standing down or terminating an employee sole on the basis of a COVID-19 event affecting them or their family.
If there is no discrimination angle, and the public health advice is such that the employee could reasonably be asked to continue to attend work, then it is possible that the employee could be investigated for refusal to follow a reasonable and lawful direction, and unauthorised absence. Depending on the reasons given by the employee, it may be necessary for the employer to require the employee to provide medical evidence in support of their inability to attend for work, or to subject to independent medical examination. If the absence is unauthorised, then the employee is likely not entitled to pay as they are not ready and willing to attend work.
So, these are a few areas which may cause concern on a daily for business owners and investors. It is prudent to seek specific advice in every set of circumstances and to ensure that compliance with the new laws and regulations is achieved in each case. Be sure and check your situation before making a decision.
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