States and Territories move to introduce land tax relief

Following recent announcements by the National Cabinet introducing the mandatory Code of Conduct (Code) for commercial tenancies, the State and Territory Governments (which are ultimately tasked with legislating the Code) have begun detailing how the Code will be implemented in each jurisdiction and what State-based relief measures will be provided to landlords and tenants. 

The Queensland Government is amongst the first to reveal details of its plan to support struggling landlords and tenants. In addition to protection from evictions, the Queensland Government will commit $400 million in land tax relief to landlords (and passed on to tenants) impacted by the COVID-19 pandemic and the Government’s social distancing measures. 

While the Code has been criticised for being tenant-focussed, Queensland’s relief will be available to commercial and residential landlords that may be facing undue hardship of their own.

In this alert, our  Commercial Property team discuss in detail the Queensland Government’s recently announced land tax relief package and what this means for eligible landowners and tenants. 

What is the land tax relief package? 

Included in the Queensland Government’s raft of new measures is a land tax relief package for eligible landowners. Under this measure, relief will be provided to landowners in the form of: 

1. a three-month land tax rebate for the 2019-20 tax year – effectively, a 25% non-repayable refund; 
2. a waiver of the 2% land tax foreign surcharge for foreign entities for the 2019-20 tax year; and 
3. a three-month land tax deferral for the 2020-21 tax year. 

Landowners are not required to apply for the land tax foreign surcharge waiver or deferral. The Office of State Revenue will reassess a landowner’s land tax assessment and provide a refund where an assessment has already been paid. However, landowners will be required to apply to the Queensland Government (here) for the land tax rebate from 14 April 2020 and by 30 June 2020. 

Given land tax often represents the largest outgoing for commercial and residential landowners, the Government’s new relief measures are significant and should reduce strain on businesses’ cash flow. 

Who is eligible for the land tax rebate? 

Landowners will be eligible for the land tax rebate provided either of the following circumstances applies: 

1.  the landowner rents all or part of a property to one or more tenants and: 

• the ability of one or more tenants to pay their normal rent is affected by the COVID-19 pandemic; 
• the landowner will provide rent relief to the affected tenant(s) of an amount commensurate with the land tax relief; and 
• the owner complies with the new leasing principles, even if the relevant lease is not regulated (see more on this below); or  

2. the landowner’s property is available for lease and: 

• the landowner’s ability to secure a tenant(s) has been affected by the COVID-19 pandemic; 
• the landowner requires relief to meet their financial obligations; and 
• the landowner will comply with the new leasing principles, even if the relevant lease is not regulated. 

In the first circumstance, and where multiple tenants lease a property, only one tenant is required to satisfy the eligibility criteria in order for the land tax rebate to apply to the whole property. However, the landowner will only be required to provide rent relief to the affected tenant(s) but may otherwise elect to provide relief to the remaining tenants.

In the second circumstance, there is no requirement that the property be leased to a tenant in order for the landowner to be eligible for the land tax rebate. In this case, eligible landowners will be entitled to retain the whole rebate. 

Where landowners are eligible for the rebate under either of the above circumstances, it is expected that the rebate will be passed on to affected tenant(s), as is required by the eligibly criteria in point 1 above. 

New leasing principles for Queensland 

The “new leasing principles”, with which landowners must comply in order to be eligible for the land tax rebate, refer to new leasing principles established by the Queensland Government (derived from, but separate to, the leasing principles in the Code). Accordingly, compliance with the leasing principles contained in the Code is not a prerequisite to landowners accessing the Queensland Government’s land tax rebate. 

The specific leasing principles which apply to landowners for the purpose of the rebate will depend on whether a property is a residential or commercial property (and currently, or to be, leased in that manner). 

The leasing principles for residential landowners are as follows:

1. landowners must negotiate with tenants in good faith to seek a mutually agreeable resolution; 
2. landowners must not evict tenants if they are in financial distress and unable to meet their commitments due to the impacts of COVID-19; 
3. landowners will not end a tenancy for any reason other than on an approved ground; this does not include the tenant’s inability to pay rent or the end of a fixed term lease;
4. landowners will not charge break lease fees for tenants who need to end a fixed term tenancy early due to the financial, health or personal safety impacts of COVID-19; and 
5. landowners will allow a tenant to refuse entry for non-essential reasons, including routine repairs and inspections, particularly if a member of the household has a higher risk profile if exposed to COVID-19.

The leasing principles for commercial landowners are as follows: 

1. the residential landowner principles 1 and 2 (above) apply to commercial landowners, in addition to the following; 
2. landowners will not increase rent, except where rent is linked to increased turnover; 
3. landowners will not penalise a tenant who stops trading or reduces opening hours; 
4. landowners will not charge any interest on unpaid or deferred rent; and 
5. landowners will not make a claim on a bank guarantee or security deposit for non-payment of rent. 

Importantly, both sets of leasing principles contain an eviction ban, which is to be underpinned and given force by new laws in Queensland. We anticipate that these laws will take effect by way of amendment to existing legislation such as the Retail Shop Leases Act 1994 (Qld) and the Residential Tenancies and Rooming Accommodation Act 2008 (Qld).

Our thoughts

It is unclear what, and the extent to which, evidence must be provided to the Queensland Government showing that a tenant’s ability to pay rent, or a landowner’s ability to secure new tenants, has been ‘affected by the COVID-19 pandemic’. It is possible that a financial threshold, for example, a percentage reduction in a tenant’s turnover (as adopted for the Federal Government’s JobKeeper scheme) will be adopted. This would provide certainty and avoid the need for case-by-case assessments. 

Where there is an evidential need for tenants to show they have been affected by the COVID-19 pandemic, this may warrant the disclosure to landowners of confidential information regarding a tenant’s financial circumstances. This may include financial statements for the current period and a previous comparative period. It is foreseeable that this information may also be used by a landowner for the purpose of determining what is a “commensurate” amount of relief to provide to affected tenants. 

It remains to be seen whether the determination of what relief is “commensurate” will import an element of discretion on the part of landlords, or alternatively, will be prescribed in legislation by way of specific calculation. In the latter scenario, a determination of what is “commensurate” relief for a tenant may be calculated by having regard to the amount of the land tax rebate (i.e. a three month or 25% refund), relative to the size of the affected tenancy proportionate to the size of the whole property.

What is clear is that any relief provided by the land tax rebate (and the foreign surcharge waiver and deferral measures) is intended by the Government to be applied, in the first instance, as rent relief to affected tenants and thereafter to the landlords own financial obligations. To this end, we anticipate the land tax relief measure, when legislated, will contain compliance mechanisms to ensure commensurate relief is being passed to tenants in appropriate circumstances. However, to date, there has been no indication as to whether and how the requirement to pass on relief will be enforced.

We expect further announcements will be made over the coming days and weeks to provide more information on the land tax relief package, which should clarify the eligibility criteria and address our above concerns. We will monitor and report on these developments as and when they occur. 

If you would like further information in relation to the Queensland Government’s land tax relief package and how this may apply to your tenancy, please contact our Commercial Property team.