On 22 April, 2020 the Queensland Government passed the COVID-19 Emergency Response Act 2020 (“the Act”).

The Act provides a wide range of powers for the Queensland Government to respond to the COVID-19 pandemic and its disruptions to public administration, judicial processes and small business. 

The areas of the Act concerning small business deal with the implementation of the National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 (“the Code”).

In this regard, the Act provides for the following in Parts 6 and 7:

1. The appointment of a Small Business Commissioner who will advise the Queensland Government on the COVID-19 response measures, assist small businesses with dispute resolution and administer a mediation service for small business tenancy disputes.
2. Enables the Queensland Government to make regulations under the Act to:
   • Prohibit recovery of possession of a premises;
   • Prohibit termination of a lease;
   • Regulate the exercise or enforcement of another Lessor rights under a lease;
   • Exempt a Lessee from any provision of another Act or of a lease;
   • Require parties to a lease to have regard to certain principles or a prescribed standard in negotiating or disputing a matter under a lease;
   • Require decision makers on any dispute under a lease to have regard to certain principles or a prescribed standard in determining any dispute;
   • Provide for a form of dispute resolution for certain disputes relating to a lease.
3. Any regulations under the Act can have effect from the commencement of the Act and will expire on 31 December, 2020.

The Act provides the mechanism for the implementation of the Code, but does not implement the principles themselves contained with the Code.

The Queensland Government has previously indicated that it will consult with industry and stakeholders on the actual implementation of the principles in the Code.

This was repeated by the Queensland Government on the reading of the legislation in Parliament.

The consultation by Queensland Government with industry and stakeholders will likely be conducted through the office of the newly-created Small Business Commissioner. 

You can see my previous blog about the Code at:

https://hillhouse.com.au/blog/david-adolphe/what-australian-landlords-and-tenants-in-the-accommodation-industry-need-to-know-about-the-pm-s-mandatory-code-and-commercial-leases

Given rent is one of the biggest expenses for an accommodation business, it is important to look at how Australian landlords and tenants can negotiate their commercial lease arrangements during COVID-19.

Last week, the Prime Minister released the draft National Cabinet Mandatory Code of Conduct – SME Commercial Leasing Principles During COVID-19 to deal with commercial and retail leasing issues arising from COVID-19.

Here a few key takeaways landlords and tenants within the accommodation sector should consider:

Is the Code enforceable?

Despite the use of the term “mandatory” in the title, it is unclear how the Code is currently enforceable.  The Code will need to be implemented in state and territory legislation and it is unknown when that will occur and how much of the Code in its current form will in fact be implemented. 

The Queensland Government has issued a statement that it will consult with stakeholders on the development of systems and implementation of the Code in Queensland.  Statements have also been released that it will take other steps to assist landlord and tenants during the crisis.   

Generally, how will the Code be applied?

The Commonwealth Government intends that the Code will apply to all commercial and retail leases in Australia.  However, at the same time the Code recognises that “all premises are different, as are their commercial arrangements” and therefore “it is not possible to form a collective industry position”. 

There is a question as to whether parties are to have a strict or flexible approach to the Code depending on the circumstances of each party in the lease on a case by case basis. 

How long will the Code apply?

No one is certain how long the COVID-19 pandemic will last, or more importantly for the purposes of the issues dealt with the Code, the financial consequences on business will last. 

It is uncertain whether the Code comes into effect with the need for state and territory legislation.  It is also uncertain how long the Code will apply with reference made to the period to which the JobKeeper Programme will apply and more generally to the period of “the impact of the COVID-19 pandemic” and “a reasonable recovery period”. 

Who does it apply to?

The Code will apply to Tenants:-

1. With annual turnovers less than $50 million; and
2. Who suffer financial stress or hardship as defined by the eligibility for the Commonwealth JobKeeper programme which requires a fall in turnover by more than 30%.

What are the Overarching Principles?

The Overarching Principles in the Code appear to be a set of aspirational guidelines intended to set the tone of the negotiations for the parties in their approaches to satisfy the objective of the Code “to share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of the tenants and landlords”.

What are the Lease Principles?

The Lease Principles are intended to be more strictly applied by the parties in negotiating their arrangements.  The strict application of these principles is in tension with the enforceability and applications issues discussed above.

The Lease Principles deal with issues such as:-

1. Restrictions on terminating leases;
2. Commitments to perform lease obligations;
3. Offers of rent reductions by way of waiver and deferrals;
4. Reduction of statutory charges and sharing benefits of loan deferrals; and
5. Freezing rental increases.

Conclusion

The key takeaways for parties to Hotel/Motel leases are:

1. The parties should seek legal advice to understand their rights and obligations under their lease, the Code and any other legislative changes in the current environment.
2. Tenants should be getting their financial information in order.
3. The parties should be open and forthcoming in the negotiations to ensure a quick and cost-effective resolution.
4. The parties should ensure that any agreement they reach is properly documented to ensure the parties understand their respective rights and obligations going forward and any risk of future disputes is minimised.

Each negotiation should be conducted on a case by case basis taking into account the particular circumstances of the parties.

Parties are encouraged to communicate with each other at an early stage and record any agreements made in a formal document.  Verbal agreements and “hand shake” deals in such uncertain times are risky for both parties. 

If Landlords or Tenants would like to discuss these new policies, how it may affect their interests and what options they may have I available any time on 0410 644 246 or by email at davida@hillhouse.com.au.