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Update for Landlords - 23 April 2020


Unfortunately, the legislation expected to be passed has not quite come to fruition yet.  A Bill was passed last night which assists in setting up the regulatory framework to allow changes to be made, but has not yet made it to the regulations being presented or passed.

It is also unclear if the 3 April date referred to in the National Code will be adopted, as the Covid 19 Emergency Response Act appears to refer to it not commencing before the introduction of that Act – which would make it take place from 22 April.  However, there does appear some opportunities for retrospectivity.  As the Act refers to multiple pieces of legislation, it may depend on the Regulations for each respective Act it affects.

For commercial Leases, an important announcement was the introduction of a Small Business Commissioner.  Other states have this but Queensland does not yet – it is intended to assist in resolution of smaller business based business issues.  This may be of great assistance if parties cannot reach agreed terms.

The explanatory note accompanying the Bill included the following:

Non-residential tenancies and Small Business Commissioner  

The Bill provides for a regulation-making power for implementing the National Cabinet decision in relation to good faith leasing principles for relevant Leases in Queensland, including to:

  • prohibit the recovery of possession of premises under a relevant Lease by a Lessor of the premises from a lessee of the premises;
  • prohibit the termination of a relevant Lease by a Lessor or owner of premises;
  • regulate or prevent the exercise or enforcement of another right of a Lessor of the premises under a relevant Lease or other agreement relating to the premises;
  •  exempt a Lessee, or a class of Lessees, from the operation of a provision of an Act, relevant Lease or other agreement relating to the leasing of the premises;
  •  require parties to a relevant Lease to have regard to particular matters or principles, or a prescribed standard, code or other document, when negotiating or disputing a matter in relation to a relevant Lease;
  • require a mediator, conciliator, arbitrator, tribunal, court or other decision-maker to have regard to particular matters or principles, or a prescribed standard, code or other document, in mediating, conciliating, hearing or deciding a matter or proceeding relating to a relevant Lease;
  • provide for a dispute resolution process for disputes relating to relevant Leases; or
  •  other matters necessary to facilitate the above.

 The Bill also provides for the establishment of the Small Business Commissioner and includes specific regulation-making powers, which deliver on the policy intent. The functions of the Small Business Commissioner established under the Bill include to:

  •  provide information and advisory services to the public about matters relevant to small businesses, particularly in relation to COVID-19 response measures;
  •  assist small businesses in reaching an informal resolution for disputes relating to small business leases during the COVID-19 emergency period; and
  •  administer a mediation process prescribed by regulation in relation to small business tenancy disputes.

Please note there is likely to be differing requirements for retail and non-retail Leases.  What these differences will be is not certain as yet. 

 Important notes

 However, important things to take out of this explanatory note are:

  1.  It appears they intend to substantially follow the National Code for commercial Leases.
  2. There may be introduced a “prescribed standard, code or other document”.  This may indicate they are proposing some kind of form to make application to Lessors to set out what they consider reasonable requirements/evidence for a rent reduction request.  This may go two ways in that the Lessor may also need to show what steps they are taking i.e. mortgage relief, land tax abatement etc.
  3. This document/form may be taken into account by a mediator etc. in determining the matter.
  4. It does also make clear that many of the stricter requirements were directed at Lessors of residential properties.  These have been softened from the original stance after consultation with relevant industry bodies.

Other matters

  1.  In recent times I have seen the approach adopted by some Lessors and recommendations by other experts in the field.  Following this I do not consider it unreasonable for a Lessor to also take the following into account when determining the drop in turnover:
  2.  The impact of Job Keeper payments.  While turnover may be down, any payments received under this program may be considered as an additional income source but not be reflected in computer produced accounting statements as income.

Any PAYG cash flow credits.  Many businesses will be receiving a credit to future PAYG tax instalments on salaries paid to employees.  This can range from $20K to $100K for small businesses (turnover less than $50 million) and not for profit organisations.  This period will cover up to the September quarter so may go beyond any downturn in income if the recovery period starts earlier than this.  Again this may not be included as income in accounting reports.

 In my view it is not unreasonable for these to be included in the effect on turnover calculations as these are benefits the Lessee is receiving.

 Conversely, it is important that a Lessor take whatever steps they can to reduce the impact on them.  This may include seeking deferral of mortgage payments and applying for land tax relief.  This information is also likely to need to be disclosed under transparency obligations referred to in the National Code.

Summary

Unfortunately, there is not yet any further clarity about the exact terms on which agreements can be based.  I do not believe there is much benefit in delaying commencement of negotiations but again would caution against binding agreements that may be non-compliant with what is ultimately legislated as this may have an impact on the agreements enforceability.  With it being consumer based legislation, it is more likely to be interpreted in a favourable manner for the Lessee who is likely to be considered at more risk in the current climate.

 


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