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Update: Retail and commercial leases in the ACT and COVID-19 – regulations

13 May 2020

#Property & Real Estate, #Dispute Resolution & Litigation, #COVID-19

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Update: Retail and commercial leases in the ACT and COVID-19 – regulations

On 12 May 2020, the Leases (Commercial and Retail) COVID-19 Emergency Response Declaration 2020 (Declaration) came into effect. The Declaration applies to retail and commercial leases in the Australian Capital Territory (ACT) and was made by the Attorney-General pursuant to section 177 of the Leases (Commercial and Retail) Act 2001 (Act).

In this article, we examine the key takeaways for ACT landlords and tenants.

Which leases are covered?

The Declaration applies to ‘prescribed leases’ (being a lease to which the Act applies which was entered into before 7 April 2020) where the tenant is an ‘impacted tenant’.

Pursuant to s 3(1) of the Declaration, a tenant is an ‘impacted tenant’ if:

  • at any time during the prescribed period, it qualified for the JobKeeper payment scheme
  • has a turnover for the 2018-19 financial year of less than $50 million for:
    • if the tenant is a franchisee, the business conducted at the leased premises;
    • if the tenant is a member of a corporate group – the group; or
    • in any other case – the business conducted by the tenant.

Turnover includes turnover from online sales of goods or services.

When does the Declaration commence?

The Declaration was notified on 11 May 2020 and commenced on the following day.

The Declaration refers to a ‘prescribed period’, which commenced on 1 April 2020 and will end on the first day that no COVID-19 emergency is in force in the ACT, or alternatively a later date notified by the Minister.

Section 5 of the Declaration provides that it will apply if an impacted tenant commits a ‘prescribed breach’ of a prescribed lease during the prescribed period, including before the day on which the Declaration commences (i.e. from 1 April 2020).

Prescribed breaches and the requirement to negotiate

An impacted tenant who fails to pay rent and/or outgoings or other amounts due under the lease, and/or fails to operate its business during the hours required under the lease during the prescribed period will commit a ‘prescribed breach’ of its lease.

Before a landlord can take any ‘prescribed action’ in respect of a prescribed breach (which includes action to evict a tenant, exercise a right of re-entry, draw down on security, call upon a guarantee, etc.), the Declaration requires the landlord to engage in ‘good faith negotiations’ with the impacted tenant:  s 8(1). 

A landlord engages in good faith negotiations with an impacted tenant if the landlord, acknowledging the financial hardship suffered by the tenant because of the impact of COVID-19, negotiates with the tenant having regard to the overarching principles and leasing principles set out in the National Cabinet’s Mandatory Code of Conduct (discussed in our previous article here): s 4(1).

It appears that the Declaration gives legal effect to all of the principles contained in the Mandatory Code of Conduct within the ACT – in so far as they are prescriptive at least.

Prescribed breaches and the landlord’s ability to terminate a lease

Section 6(1) provides that a landlord must not give a termination notice to an impacted tenant in relation to a prescribed breach unless the landlord has first engaged in good faith negotiations with the tenant. Any termination notice issued in contravention of s 6(1) is void: s 6(2).

If, between 1 April 2020 and 12 May 2020:

  • a landlord issued a termination notice to an impacted tenant on account of a prescribed breach
  • the tenant has contested the notice under the Act or the landlord has applied to the Magistrates’ Court for confirmation of the termination,

then the Court must not confirm the termination unless it is satisfied that the landlord has engaged in good faith negotiations with the tenant: s 7.

Section 5(3) provides that nothing in the Declaration prevents a landlord from terminating a lease or taking prescribed action against an impacted tenant if:

  • the tenant agrees to the termination or action; or
  • the landlord has engaged in good faith negotiations with the tenant and the parties reach an agreement for the tenant to surrender the lease.

Disputes

Although not specifically dealt with in the Declaration, it appears to us as though the Magistrates’ Court will have jurisdiction to deal with disputes between landlords and impacted tenants pursuant to s 17 of the Act. 

Should you have any queries regarding the legislative developments in the ACT and how they will apply to your business, please feel free to contact us for a discussion.

Authors: Chris Brodrick & Alana Giles

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

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