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

This regulation commenced 28 May 2020 and applies to leases covered under the National Leasing Code with some limited exclusions.

Leases that are covered are retail and commercial leases to tenants that have at total turnover of less than $50 million and who qualify for the JobKeeper subsidy. The turnover threshold applies to corporate groups as a whole but applies to franchised businesses individually.

Farming leases and certain leases under the Land Act (the later have their own regulation) are excluded leases.

The Regulation requires the parties to give full and frank disclosure of relevant economic and other circumstances.

Either party can give a notice to start a renegotiation of lease terms. Both parties must then make frank disclosure to each other and the Landlord then has 30 days (from the date both parties give disclosure) to make an offer to the Tenant. The parties are required to negotiate in good faith.

The Landlord must offer a rent reduction on the following terms: –

  • A waiver of at least 50% of the total rent reduction;
  • Considering all of the circumstances of the Tenant including the reduction in turnover;
  • Considering the respective capacities of the Landlord and Tenant to cope with the effects of the COVID emergency.

Any deferred rent is to be interest free, claim from 1 October 2020 and must be amortized over a period of between 2 to 3 years.

If the parties have existing arrangements (made prior to the Regulation) these are preserved however the Tenant can ask for a further reduction to be negotiated (but the 50% waiver does not apply).

The Regulation also contains provisions for Mediation and referral of a dispute to QCAT.

Importantly, there are also ‘Prescribed Actions’ which is any form of enforcement action under the lease or the security or any other right by the Landlord.  A Landlord must not take a Prescribed Action after 28 May 2020 on the grounds of either the Tenant not paying rent or the Tenant not being open for Business. This restriction applies to 30 September 2020.

There are exceptions. The Landlord can take action in accordance with an agreement made under the Regulation, for a substantial failure by the Tenant to comply an obligation under the Regulation or grounds not related to the COVID emergency. The Tenant will be protected if the Landlord’s true motivation is a factor relating to the COVID emergency.