COVID-19 Commercial Leasing Regulations in practice: Landlord restrained from taking action against tenant

Many months have passed since the arrival of COVID-19. With this has come many changes and protocols once foreign to us; social distancing, contacting tracing, or hygiene conscious practices have now become concepts filled with a sense of familiarity. Apart from these changes, the legal sphere in Queensland has also seen changes. One such industry seeing changes is the commercial lease industry.

On 28 May 2020, the Queensland Government introduced the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld) (‘Regulation’) offering a range of leasing protections for businesses who have been affected by the virus within the response period.[1] A few months later, on 29 September 2020, much of these protections were extended to 31 December 2020 through the introduction of extension period under the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Amendment Regulation 2020 (Qld) (‘Amended Regulations’).[2]

Since the implementation of these protections, many businesses struggling to comply with obligations under its leases would have relied upon these protections throughout negotiations with its landlords. Whilst many may be successful in negotiations, others may require external intervention whilst the dispute is still ongoing; one such example is the case of Kirk & Anor v Sunshine Developments (Vic) Pty Ltd [2020] QCAT 493 (‘Kirk’) that was recently brought before the Queensland Civil and Administrative Tribunal (‘QCAT’).

Background

Mr Kirk and Aquarius Resource Management Pty Ltd (‘tenants’) each lease commercial premises in the same complex from Sunshine Resource Management (Vic) Pty Ltd (‘the Landlord’). On 30 October 2020, two Form 7 Notices to Remedy Breach of Covenant (‘Form 7 Notices’) were issued to the tenants for a failure to comply with the obligations under the lease.

On 6 and 9 November 2020, the tenants filed two applications to QCAT pursuant to section 12(3) of the Regulations. The latter was an application to resolve the overall dispute to be heard at a later date if alternative dispute resolution was unsuccessful. The former was an application for interim orders—to be heard in the present application—seeking for the landlord to comply with the protections offered under section 12 and to be restrained from relying upon the Form 7 Notices to take any prescribed action.

Section 12(1) of the Regulations indicates that under an affected lease, the landlord must not take any prescribed actions for either a failure to pay rent, outgoings, or a failure to carry on business in the leased premises during the response or extension period. Such prescribed actions include: “an action under a lease or the starting of a proceeding for recovery of possession, termination of the lease or exercising a right of re-entry”.[3]

The key question was therefore: whether an interim order should be granted restraining the landlord from taking the prescribed actions under section 9 of the Regulations. To this end, considerations of whether the lease is an affected lease under the regulations and whether an interim order to restrain the landlord should therefore be granted were required.

Was the lease an affected lease?

According to section 5(1) of the Regulations, a lease is an affected lease if:

  • the lease is a retail shop lease, or a lease carrying on business;
  • the lease is binding on the tenant as at 28 May 2020 (whether or not it has commenced);
  • the tenant is a Small-Medium Enterprise (‘SME’) entity (which is generally an entity with less than $50 million turnover); and
  • the tenant is eligible for the JobKeeper Payment scheme.

In Kirk, the tenants asserted that their lease is an affected lease in compliance with the requirements under section 5(1). This was contended by the landlord in reliance upon the exceptions under section 12(2) of the Regulation that:

“the lessees have not complied with their obligations under the Regulations; and at least in respect of the lease to Mr Kirk the Notice relies upon a breach of the lease other than those referred to in section 12(1) of the Regulations, being breach of the obligation not to alter the premises or install partitions without written consent.”

With respect to the landlord’s assertion that they have altered the premises, the tenants claim that Mr Saviane, a director of the Landlord, had verbally agreed to this change and that this exception therefore does not apply.

Based on the available evidence, the tribunal held on an interim basis that each lease is an affected lease as there is some evidence that each lease was a prescribed lease, each lease is binding on the landlord, each tenant was a SME, and each tenant was eligible for JobKeeper.[4]

After establishing that the relevant leases are affected leases, consideration turned to whether the landlord should be restrained on an interim basis from taking any prescribed actions.

Should interim orders be granted to restrain the landlord?

In accordance with section 58(1) and (2) of the Queensland Civil and Administrative Tribunal Act 2009 (Qld), the tribunal identified several factors that needed to be considered when deciding whether an interim restraining order should be made—these factors are:

“(a) why a restraining order is required to protect a party’s position for the duration of the proceeding or is required to secure the effectiveness of a final decision;

(b) why damages are not an adequate remedy if the Landlord takes action contrary to law;

(c) whether… (the tenants) offer an undertaking as to costs or damages and the value of any such undertaking”

The tribunal ultimately concluded that making an interim order restraining the landlord would protect the parties’ position whilst the application to resolve the overall dispute was still on foot. It was further noted that a contravention of the statutory prohibition under section 12 of the Regulations does not expressly give a right to damages under the Regulations.

The Decision

In light of the tenant’s circumstances based on the evidence available, and the above factors, it was held that an interim order ought to be made in the interest of justice until a final order is given. The landlord was therefore restrained from taking any prescribed actions as defined by section 9 of the Regulations.

Evidently there are still factual contentions that needs to be resolved. The parties are to proceed through the mediation processes provided for by the Regulation. Should mediation and other forms of negotiation be successful, the tenants may file a Notice of Withdrawal to dissolve the application. If not, the parties have a right to resolve their dispute before the Tribunal pursuant to section 41 of the Regulations.

What we can learn from Kirk

The lesson from Kirk is that if you are a commercial tenant that has been affected by COVID-19 in your ability to comply with the obligations under your lease, andthe period in which you cannot comply was from 29 March 2020 to 31 December 2020, it is extremely important for you to seek legal advice to discern whether or not you are an affected lease under the Regulations, and what your rights are when negotiating with your landlord.

If negotiations are unsuccessful and your landlord is adamant in taking action for your breach, it may be possible for you to seek an interim order restraining your landlord from taking any actions whilst the dispute is being resolved.

If you require any legal assistance, or would like further information regarding what your options are, Corney & Lind can offer timely advice regarding your rights and protections under the Regulations and assist you in navigating past this difficult period of time.

If you would like to get in touch with one of our lawyers, please contact us at 07 3252 0011 or send us an email at enquiry@corneyandlind.com.au.

Other questions

Do the Regulations still offer relief in 2021?

If you are a tenant under a Commercial Lease and your breach has occurred in 2021, unfortunately, the Regulations do not offer you any protections from any prescribed actions. However, any rights and obligations that have been accrued within the response period and the extension period are still preserved and can still be relied upon in 2021.

This article was written by Ervin Hii


[1] The Response Period under the Regulation is from 29 March 2020 to 30 September 2020: Schedule 1 Dictionary (definition of ‘response period’). See also Regulation s 5 for meaning of ‘affected lease’.

[2] The Extension Period under the Amended Regulations is from 1 October 2020 to 31 December 2020: Schedule 1 Dictionary (definition of ‘extension period’).

[3] Kirk [17]; see also Regulations s 9 for other prescribed actions.  

[4] See Kirk [24].

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