Retail Shop Leases & Commercial Leases - COVID-19 Emergency Response Regulation 2020

The Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 was enacted on 28 May 2020.

The purpose of the regulation is to mitigate the effect of COVID-19 and also specifically to give effect to the good faith leasing principles in the National Cabinet Mandatory Code of Conduct—for SME Commercial Leasing.

The regulation has two key aspects:

1. dealing with negotiations and actions during the “response period” (as that expression is defined); and
2. dispute resolution provisions.

Some of the key issues are as follows: -

1. The “response period” is defined to be the period between 29 March 2020 and 30 September 2020.
2. The regulation is intended to provide relief to parties to an “affected lease” by way of a number of measures, including guiding rent reduction negotiations, providing a moratorium on evictions for non-payment and access to a dispute resolution process specifically designed for small business tenancy disputes and disputes on affected commercial leases
3. The regulation defines the meaning of ‘affected lease’ which has been drafted to extend to franchise situations and also to the situation where the lessee under the lease may not be the employing entity.
4. An affected lease means a retail shop lease or a lease of premises used for carrying on a business. There are two other key requirements:
   
   
5. the lessee must also be a small to medium enterprise entity under the Commonwealth Government’s “Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Rules 2020”; AND
6. the lessee (or an entity connected with or an affiliate of the lessee) must be eligible for the Commonwealth’s JobKeeper scheme. 
7. The regulation prohibits lessors from taking prescribed action on certain grounds during the COVID 19 response period.  This includes, for example, prohibiting the lessor from terminating the lease or evicting the lessee for a failure to pay rent.
8. There is an obligation on the parties to an affected lease to cooperate with one another.  There is a process for negotiating rent reductions and other conditions.  There are requirements for a mix of deferred rent and waivers and also extending lease terms based on the period of waiver or rent deferral. 
9. The regulation preserves any pre-regulation agreement between a lessor and lessee and does not invalidate inconsistent agreements. It preserves the right of parties to negotiate or renegotiate their arrangements.
10. The regulation confers dispute resolution responsibility on the new Small Business Commissioner, created under the Covid-19 Emergency Response Act 2020.
11. Parties can still use alternative ways to resolve the dispute. A party can also choose to refer the dispute to the Small Business Commissioner. 
12. The Commissioner arranges a mediation conference by nominating a mediator and giving written notice to each party to the dispute. 
13. There is also a process for related disputes to be heard together at the mediation conference.  The example provided is a dispute where a franchisee subleases premises and the franchisor is the lessee from the landlord. 
14. Parties to a mediation must pay their own costs for the conference unless otherwise ordered by QCAT or a court, but the Small Business Commissioner must pay the mediator’s fees and costs.
15. If the parties to the dispute cannot reach a settlement at mediation, or a range of other circumstances apply, a party to the lease dispute can apply to QCAT for an order to resolve the dispute provided it is within QCATS's jurisdiction.

14. The regulation also includes special clarifications such that:

1. If a lessee is required to close their business under a public health direction, the closure is taken not to amount to a breach of the lease. 
2. the lessor may cease or reduce any services at the premises if a lessee under an affected lease is unable to operate a business at the premises for any part of the response period because of the COVID-19 emergency. 

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