How long will COVID-19 Rent Relief last in Queensland? Sneakerboy and beyond - UPDATE 25/09/2020
Sep 2020 | Commercial PropertyOriginally published 8 September 2020. Article updated 25 September 2020
By way of update from our most recent article below, following that publication, the Honourable Yvette D'Ath, Attorney-General and Minister for Justice has announced that there will be a three-month extension of the moratorium on retail and commercial lease evictions from the existing expiry date of 30 September 2020 through to 31 December 2020. A number of the other States and Territories have similarly confirmed they will also be extending the period for effect of commercial leasing regulatory amendments in response to the continuing COVID-19 pandemic. The amendment to the Queensland Regulation has not yet been made to give effect to the Attorney-General’s announcement, and it remains to be seen whether there may be any other amendments to the Regulation when implementing this extension, but it would be expected the amending Regulation will be made shortly. We will publish a more detailed update once the Queensland amendment has been made.
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COVID-affected commercial leasing - Part 3
This is the third article in our series regarding the introduction of the National Cabinet Mandatory Code of Conduct – SME commercial leasing principles during COVID-19 (Code) by the Australian Government in April 2020 in response to the devastating effects of COVID-19. As noted in our article in June 2020, the Queensland Government passed the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld Regulation) in May 2020. The Qld Regulation is in effect for the period from 29 March 2020 to 31 December 2020. A landlord under an affected lease must not take ‘prescribed action’ during the ‘response period’, being the period from 29 March 2020 to 30 September 2020.
A recent case determined by the Supreme Court of New South Wales, Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd1 (Sneakerboy) found that the landlord was obliged to offer reduced rent to the tenant not only for the period in which the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (NSW Regulation) was in force, but also for a ‘subsequent reasonable recovery period’ which, in that case, was six months.
For the reasons below, it seems unlikely the Queensland Courts will adopt a similar approach when applying the Qld Regulation.
Relevant issue determined in Sneakerboy
The Sneakerboy dispute has been played out in the Supreme Court since July 2020. Relevantly, in the most recent decision, the court was required to determine whether orders should be made concerning ongoing compliance with the Code and the NSW Regulation beyond the period in which the NSW Regulation was in effect.
In short, the landlord argued that, from the time the NSW Regulation is automatically repealed on 24 October 2020, the amount payable for rent by the tenant should be as per the lease in place pre-COVID-19. In disagreeing with the landlord’s contentions, the court considered the conflicting application of:
- regulation 7(3) of the NSW Regulation which requires that ‘a party to an impacted lease must, if requested, renegotiate in good faith the rent payable under, and other terms of, the impacted lease’ (i.e. could this have the effect of renegotiated terms remaining in place even after the NSW Regulation was repealed?); and
- clause 12 of the NSW Regulation, which automatically repeals the NSW Regulation six months from commencement. In this respect, the question was whether negotiations, which had not concluded before the NSW Regulation was automatically repealed, would give rise to any enforceable rights created during the period in which the NSW Regulation was in force.
Conclusions of the Court
In concluding that Sneakerboy was entitled to enjoy reduced rent for a period of six months following the automatic repeal of the NSW Regulation, the court relied heavily on the language used in leasing principle 3 of the Code which requires landlords to offer tenants proportionate reductions in rent ‘based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period’.
The term ‘subsequent reasonable recovery period’ does not appear in the NSW Regulation nor is it defined in the Code. The court considered that this terminology had the effect that waivers and deferrals extended beyond the ‘COVID-19 pandemic period’ (the only definition of which is contained in a statement of purpose of the Code which ties it to the period in which JobKeeper is operational).
The court subsequently embarked upon an analysis of what, in its view, could have been negotiated between landlord and tenant having regard to the NSW Regulation, the Code and the positions of the parties. It concluded that the tenant was entitled to a reduced rent for the period in which the NSW Regulation was in place (being 1 April 2020 to 31 October 2020) as well as for a ‘subsequent reasonable recovery period’ of six months. This had the effect of extending a reduced rental amount out to 30 April 2021.
Why the Queensland Courts may take a different approach
To date, there have been no reported decisions by Queensland Courts with respect to the interpretation of the Qld Regulation or the application of the Code.
There are some important overall differences between the NSW Regulation and the Qld Regulation which are likely to impact on how the Queensland Courts will approach the application of the Qld Regulation.
First, the NSW Regulation is comprised of only 13 regulations. The approach taken in the NSW Regulation is to refer back to the various leasing principles in the Code by way of notes which appear at the end of particular regulations. In contrast, the only nod to the Code in the Qld Regulation (which spans some 49 regulations) is contained in regulation 3(b) which provides that the ‘main purposes of this regulation are – (a) to mitigate the effects of the COVID-19 emergency on lessors and lessees under affected leases by giving effect to the good faith leasing principles set out in the National code;…’.
Regulation 7 of the NSW Regulation sets out, in brief terms, the obligations on landlords and tenants to renegotiate rent and other terms of commercial leases before a prescribed action can be taken. By way of contrast, the Qld Regulation is significantly more extensive (pursuant to Part 2).
In the absence of any detailed guidance in the NSW Regulation, it is not surprising that the Court in Sneakerboy looked to the terms of the Code in determining the extent to which the obligations under regulation 7 of the NSW Regulation were to apply. In this respect, the Court weighed up what the undefined term of ‘subsequent reasonable recovery period’ meant in leasing principle 3 of the Code. The Court accepted the submission by the tenant that a reasonable recovery period was in that case six months following the NSW Regulation being repealed.
Regulation 15 of the Qld Regulation is arguably the equivalent of regulation 7 of the NSW Regulation. It obliges a landlord to offer a rent reduction together with any other proposed changes to the conditions of the lease within a specific period of time. However, rather than just referring back to the Code, the offer made by the landlord must comply with the matters detailed in regulation 15(2) of the Qld Regulation including by having regard to all of the circumstances of the lessee (including reduction in turnover during the ‘response period’). Further, under regulation 15(3), the relevant obligation is in respect of the amount of rent payable under the lease for the ‘response period’. The ‘response period’ in the Qld Regulation is defined to mean the period between 29 March and 30 September 2020. In other words, unlike the NSW Regulations, the obligations under the Qld Regulations have express temporal limits.
Given the above, and the fact that requirements of the Qld Regulation are much more prescriptive than those contained in the NSW Regulation, Queensland Courts may be less likely to need to refer back to the Code when it comes to interpreting the Qld Regulation.
Takeaways
In Queensland, the ‘response period’ expires on 30 September 2020. This means that landlords, who are currently prohibited from taking certain prescribed action, such as termination of a lease, exercising a right of re-entry or a claim on a security for unpaid rent or outgoings, will no longer be restrained from taking such action after the end of this month. There is no present public indication of intent to extend the ‘response period’ in Queensland. In comparison, rent relief has recently been extended in Victoria. In Queensland, parties to an ‘affected lease’ must however co-operate, act reasonably and in good faith in actions associated with mitigating the effects of the COVID-19 pandemic under regulation 11 until the Qld Regulation expires on 31 December 2020.
Queensland landlords who have deferred increasing rent may wish to consider whether they will increase rent after 30 September 2020 and any landlord who has increased rent after 29 March 2020 but not given effect to an increase may wish to take steps to towards implementing a rent review from October onwards. Nevertheless, care should be taken because under regulation 13(4) a lessor must not, after the ‘response period’ ends, take a prescribed action against a lessee on the ground of a failure to pay an amount equal to or representing the amount of the increase prohibited under regulation 13(1) or (2) i.e. an increase in rent payable during the response period or an increase in rent not given effect until the ‘response period’ ends. Additionally, it is possible that factors considered by a lessor in increasing rent may need to be disclosed to the lessee under regulation 14.
Tenants should continue dialogue with their landlord regarding their financial position and other circumstances relevant to their capacity to meet their lease obligations if a request for continuation of rent relief during the period of the Qld Regulation is contemplated.
Finally, while the ‘response period’ ends shortly in Queensland, where parties have agreed to deferred rent, payment must be amortised over a period of at least two years but no more than three years commencing after 30 September 2020. Therefore the Qld Regulation still has the potential to regulate the landlord and tenant relationship after the end of this year and beyond April 2021 - similar to what occurred in Sneakerboy.
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1 (No 2) [2020] NSWSC 1141.
This article may provide CPD/CLE/CIP points through your relevant industry organisation.
Read 'COVID-affected commercial leasing - Part 1' by clicking here and 'Part 2' by clicking here.
