Clarity for Landlords and Tenants finally arrives!

Summary:

• New Qld law based on the Federal Mandatory Code of Conduct has been made.
• There are some differences from the Code which should be noted.
• These requirements are now enforceable, so Landlords and Tenants must all ensure they comply with its requirements.

Code now law in Queensland
 
After what has seemed like an eternity for commercial and retail Landlords and Tenants desperate for further guidance in relation to the application of the Mandatory Code of Conduct released by the Commonwealth Government on 9 April, the Queensland Government has finally made a Regulation that passes the Code into law in Queensland.
 
As expected, the Regulation applies the eligibility criteria set out in the Code and prohibits a Landlord from (amongst other things):

• terminating a lease;
• claiming damages;
• charging interest on unpaid rent or outgoings;
• claiming on or enforcing a Tenant’s security; or
• otherwise exercising the Landlord’s rights under the Lease,

as a result of either:

• non-payment of rent and outgoings; and/or
• for failure to keep the Tenant’s business open;

for a period wholly or partly occurring during the “Response Period”.
 
The “Response Period” is defined as 29 March 2020 to 30 September 2020. Interestingly, specifying that the moratorium applies to a period that is “wholly or partly during the Response Period” may mean that Landlords are unable to recover any of the March rent that they previously thought would fall outside the period covered by the Code.
 
Rent review provisions different from Code
 
In a small departure from the Code, where a rent review date falls during the Response Period, the Landlord may review the rent at that time, but must not give effect to that increase in rent until after the Response Period ends. For example, if the lease provides for a 4% fixed increase on 1 July 2020, the Landlord can review the rent on that date, but the higher rate of rent will not begin to be payable (or accrue for later payment) until after the Response Period expires on 30 September. While this is good news for Landlords who would have assumed under the Code that they would miss their rent increase altogether, it is not so great for Tenants who from 1 October will potentially have not only increased rent, but also the repayment of deferred rent in circumstances where their revenue may not have returned to pre-COVID levels.
 
Rent reductions
 
The Regulation also places some more structure around the negotiations that are required to take place between Landlords and Tenants to agree on appropriate rent reductions, including:

• requiring requests to negotiate rent reductions and variations of other terms of the lease to be in writing;
• requiring each party to give the other sufficient information in relation to the request that is true, accurate and not misleading and sufficient to enable the parties to negotiate in a fair and transparent way, as soon as practicable after the initial request for a rent reduction is made;
• requiring the Landlord to offer a rent reduction and any other proposed changes within 30 days after receipt of the sufficient information referred to above (including that at least 50% of the rent reduction be in the form of a waiver); and
• requiring the Landlord’s offer to have regard to all of the circumstances of the Tenant, not just the Tenant’s reduction in turnover. In fact, there is no specific requirement at all in the Regulation that the rent reduction offered be proportionate to the downturn in the Tenant’s turnover, which is another departure from the Code.

A further departure from the Code comes in relation to the repayment of rent that has been deferred as part of the rent reduction arrangement agreed between the Landlord and the Tenant. Where the Code requires repayment over the balance of the term of the lease with a minimum repayment term of 2 years, the Regulation requires repayment over a period of at least 2 years but no more than 3 years. Further, where the Code refers to the pandemic period (ending on 27 September) and a reasonable subsequent recovery period, the Regulation does not contemplate the concept of a reasonable subsequent recovery period and the payment of deferred rent may commence on the day after the Response Period expires.

Inconsistent agreements permitted

In news that will be very welcome for Landlords in particular, the Regulation permits the parties to the lease to make arrangements between them that are not consistent with the Regulation. This affords the parties some much-needed flexibility in reaching arrangements that are suitable for their particular circumstances. The Regulation also preserves agreements that were entered into between Landlords and Tenant prior to commencement of the Regulation, even if the terms of those agreements are inconsistent with the Regulation.

Automatic suspension of current actions or proceedings

Lastly, the Regulation automatically suspends or stays any proceedings or actions commenced by the Landlord during the period from 29 March to the commencement of the Regulation, that relate to the non-payment of rent or outgoings, or a failure to open for trade, until after the expiry of the Response Period. This puts the brakes on any Landlords trying to quickly enforce their leases against Tenants in the window between the announcement of the Code and the contents of the Code being made into law in Queensland.

Summary

The Regulation has answered many questions that Landlords and Tenants have had regarding the practical application of the Code. While there are some important departures from the Code that should be observed, the Regulation largely passes both the intent and content of the Code into law in Queensland and finally delivers some certainty for affected businesses and their Landlords.

If you require any assistance negotiating or documenting arrangements reached in accordance with the Code or the Regulation, please contact our Commercial + Property Team. CGLaw has developed a low cost Deed of Variation that is consistent with the Regulation, which can easily and quickly document agreements reached between Landlords and Tenants.