Queensland moves to extend retail and commercial rent relief

On 1 June this year, we wrote about the introduction of the Retail Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld) (Regulation) and its impact on retail and commercial leases (see our article here). In short, the Regulation sought to temporarily mitigate the effects of the COVID-19 emergency on lessees by providing mechanisms for rent relief and avenues for dispute resolution. 

The ‘response period’ for relief provided under the Regulation was to expire at the end of September 2020. 

However, due to the ongoing and unpredictable nature of the COVID-19 pandemic and the deepening economic implications for most (if not all) businesses, the Queensland Government has moved to extend the measures under the Regulation beyond the initial response period by introducing the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Amendment Regulation 2020 (Qld) (Amendment Regulation). This Amendment Regulation can be accessed online here. 

In this alert, Ivan Orola, Justin Raiteri and Chris Cullen discuss the Amendment Regulation and its impact on retail and commercial tenancies in Queensland. 

Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Amendment Regulation 2020

Following much anticipation, the Amendment Regulation was notified as being made on 29 September 2020. The Amendment Regulation seeks to extend the period during which the relief mechanisms introduced under the Regulation will apply and to tighten eligibility criteria for lessees seeking relief. 
 
The provisions of the Regulation relating to rent relief were to apply initially for the duration of the response period only, being 29 March 2020 to 30 September 2020. However, the Amendment Regulation extends the period of those relief mechanisms (and other provisions) under the Regulation from 1 October 2020 to 31 December 2020, referred to as the "extension period”.  Importantly though, the Amendment Regulation is only relevant to leases that are ‘affected leases’ for the purposes of the extension period (see further below).

What are the key changes? 

We summarise the key changes to the current framework below: 

1. Additional requirement to constitute an ‘affected lease’ – The Regulation is modified to incorporate a new requirement which must be satisfied in order for a lease to constitute an affected lease for the purposes of the extension period and ultimately, to qualify for relief under the Regulation for the extension period. In addition to the existing requirements (e.g. that the lessee be a SME entity), a lease will only be an affected lease for the purposes of the extension period if the lessee (or a connected or affiliated entity of the lessee) is eligible for JobKeeper 2.0, which commences on 28 September 2020 and ends on 4 January 2021. Broadly speaking, an SME entity will be eligible for JobKeeper 2.0 if the lessee’s actual turnover (as opposed to projected) for the September quarter when compared to the same quarter last year has decreased by 30% or more. 
2. Abolishment of entitlement to rental waiver – the Amendment Regulation removes the obligation imposed on lessors under the Regulation to offer at least 50% of the negotiated rent reduction in the form of a rental waiver. In other words, rent relief offered to a tenant during the extension period may be solely in the form of a rent deferral, to be amortised over the course of at least two (but no more than three) years commencing 1 January 2021. 

What protections and relief remain? 

The Amendment Regulation generally preserves the protections, relief measures and dispute resolution mechanisms introduced under the Regulation for leases that are affected leases for the purposes of the extension period (save for some minor modifications). Specifically: 

1. A lessor of an affected lease is prohibited from taking prescribed action (e.g. recovery of possession, termination of the lease, eviction of the lessee) for a lessee’s failure to pay rent or outgoings or to trade for hours required in the lease during the extension period.
2. The prohibition on rent increases remains. Any rent reviews prescribed in a lease may still occur, though any increase cannot be given effect until after the extension period (i.e. only from 1 January 2021). 
3. Lessees remain entitled to initiate rent negotiations and procure an offer for rent relief from the lessor (however, note that lessors are no longer obliged to offer relief in the form of a rental waiver, as is discussed above). The lessor’s offer may include any rent reduction already offered or applied to the rent during the response period or extension period.
4. The rent relief offer does not need to be commensurate with the lessee’s actual turnover reduction, that is only one of the factors that the parties should have regard to, which includes the lessor’s financial position and any financial relief provided to the lessor. Lessors should consider, for example:

• any deferred interest repayments under loans which may now become repayable to financial institutions; and
• land tax relief granted by the Commissioner of State Revenue for the 2020/21 land tax year.

4. Repayments of deferred rent are to commence on the day immediately following the end of the period to which the rent relates, that is, either the response period or the extension period. In other words, the extension of the Regulation does not extend the repayment commencement date for existing rent deferrals. However, that is not to say a further rent deferral cannot be negotiated under the Regulation for the extension period – rent renegotiations are specifically contemplated in the Regulation and continued throughout the extension period. 
5. The Amendment Regulation does not impact the dispute resolution mechanisms or forums established under the Regulation (e.g. the referral of disputes to mediation, QCAT or the Small Business Commissioner). 

Finally, it is important to note that lessors and lessees can still negotiate rental relief and deals on their own terms. Deals that were entered into prior to or inconsistent with the Regulation or Amendment Regulation are still valid and enforceable. If a prior agreement deals with rent relief during the extension period, then that prior agreement is sufficient and remains valid.

In light of the ongoing nature of the COVID-19 pandemic and the economic impact on businesses, it remains to be seen whether further extensions or other amendments of the Regulation will occur in Queensland. 

If you would like further information or assistance with negotiating or documenting relief arrangements in accordance with the Regulation, please contact our Commercial Property team.