On Wednesday 22 April 2020 the COVID-19 Emergency Response Bill 2020 (COVID-19 Act) was passed. In our latest article, we look at the impacts of the Bill on commercial and residential landlords
Firstly, it is important to understand the intentions behind the Bill.
Secondly, it is crucial you do not agree to anything or sign any documents without careful advice and following a process. This includes getting the terms of any agreement to vary a lease in writing as to the fundamental points, getting a formal deed of variation signed on correct legally enforceable terms and preparing then lodging on the title the amendment to Lease. This is particularly critical for any extended term of the lease, Option exercise dates and market rental review dates.
Understanding the COVID-19 Act
Its purposes are:
- to protect the health, safety and welfare of persons affected by the COVID-19 emergency;
- to facilitate the continuance of public administration, judicial process, small business and other activities disrupted by the COVID-19 emergency, including by easing regulatory requirements and establishing an office of the Small Business Commissioner;
- to provide for matters related to residential, retail and prescribed leases affected by the COVID-19 emergency; and
- to support the Queensland rental sector during the COVID-19 emergency period.
The Act effectively enables Ministers to make extraordinary regulations that override other Acts if the Minister is satisfied the regulation is necessary for the purposes of the COVID-19 Act.
What does it mean for Queensland landlords and tenants?
It allows Ministers of various Queensland Departments to make regulations to ensure the health and safety due to the COVID-19 emergency and the continuance of public administration, small business and other activities. This includes Retail Shop and Commercial leases as well as leases from Government owned buildings.
Regulations of the Act
The regulations the COVID-19 Act will include, among others, are:
- The establishment of the Small Business Commissioner to provide a single point of information and advice, especially in relation to dispute resolution;
- Protect residential tenants who are not able to meet their obligations;
- Remove landlord obligations to undertake routine maintenance if the landlord is unable to enter the premises; and
- Introduce good faith leasing principles for landlords and tenants of non-residential tenancies.
At the time of writing, the only Regulation that has been tabled in the Residential Tenancies and Rooming Accommodation (COVID-19 Emergency Response) Regulation 2020 (Regulation).
The Regulation will override provisions in the Residential Tenancies and Rooming Accommodation Act 2008. The Regulation is detailed and provides for:
- Protection of tenants who suffer a 25% loss of income or where the rent payable is more than 30% of the tenant’s income;
- A moratorium on evictions until the earlier of 29 September 2020 or the last day of the COVID-19 emergency period;
- If a tenant is suffering excessive hardship an extension of the term until 30 September 2020; and
- A limitation to recover re-letting costs to one week’s rent if the tenant suffers a loss of income of 75% or more and the tenant has less than $5,000 in savings.
Retail and other prescribed leases
Part 7 of the Bill addresses retail leases and other prescribed leases by establishing a regulation-making power. The Bill itself does not lay down substantive rules of law governing the practical issues experienced by landlords and tenants through the COVID-19 pandemic, but merely provides for the passage of subsequent regulation dealing with those issues.
In reference to the explanatory notes of the Bill, the policy objective of the Bill is to provide a legislative framework to facilitate the implementation of the good faith leasing principles provided in the National Cabinet Mandatory Code of Conduct (Code of Conduct). The powers will allow regulation to be made that will:
- prohibit the recovery of possession of premises
- prohibit the termination of a lease
- regulate or prevent the exercise or enforcement of any other right under a lease agreement
- exempt a particular type or class of tenants from the protection of the Bill
- require parties to comply with particular principles, a prescribed standard or code when negotiating or disputing a matter under a lease, and
- provide a dispute resolution process throughout the coronavirus pandemic
At this stage the regulation-making power is time limited to 31 December 2020, but the Bill does not provide a time in which any regulation itself will cease to be of effect. This will likely be dealt with in the regulation itself.
The type of leases that the Bill applies to are:
- a retail shop lease under the Retail Shop Leases Act 1994 (Qld), and
- a lease prescribed by regulation for this definition
This means that the Bill itself gives a focus to retail leases but relies on the further regulations to further deal with other leasing agreements, such as commercial or industrial leases.
The Bill contemplates that any subsequent regulation will be applicable to relevant leases, sub-leases, licences or any other agreement to occupy premises, other than a residence.
Small Business Commissioner
The Bill also establishes an office of Small Business Commissioner, which is relevant to a lease of a premises used for a small business (small business lease) and for a dispute relating to the small business lease (small business tenancy dispute).
The purpose of the Small Business Commissioner is to deliver advocacy and dispute resolution support for small businesses and to provide small businesses with a single point of contact for leasing disputes. The Commissioner will have powers to enable the regulation to be used to prescribe the dispute resolution procedure for small businesses.
The functions of the Small Business Commissioner include:
- providing information and advisory services about matters relevant to small businesses
- assisting small businesses in reaching an informal resolution for disputes relating to small business leases, and
- administering a mediation process in relation to small business tenancy disputes
The Land (Covid-19 Emergency Response-Waiver and Deferral of Rents and Instalments) Regulation 2020 passed last week. This only covers tenants of Government buildings and has a defined threshold requirement as well as a formula based resolution process.
The Commercial Leases of private owned properties are yet to be regulated
Consider the options:
Waiver of rental being irrevocable
Agreement to reduce rental for a fixed period
Agreement to defer rental for a fixed period linked to lock down or end of the declared covid crisis
Waiver for non-performance for a set period
Agreement to change the dates for performance of rental and outgoing or other requirements under the lease for a set date
Agree to vary the lease as to the Term, the Option exercise date, or market review dates.
Landlords and tenants must be very careful in the renegotiation process to ensure good faith and adequate legal representation.
We have developed a system for compliance by:
1 Negotiating a Terms Sheet that complies with the regulations to ensure all fundamentals are clearly recorded including a working example;
2 Drafting and signing a formal Deed of Variation of Lease signed by both parties and on independent legal advice;
3 A formal Amendment to lease signed and lodged for registration on the title to the property to ensure all subsequent owners are alerted to any changes and it is binding.
Please call or email to arrange a web conference to discuss your circumstances.