COVID-19 alert: Read about changed restrictions for businesses in Greater Brisbane from 6pm, Monday 11 January.

Negotiating commercial rent relief during COVID-19

The Queensland Government has committed to permanently establishing the Queensland Small Business Commissioner (QSBC). As work to permanently establish the office is underway, the Government has extended the Regulation to allow QSBC to continue providing dispute assistance and mediation services.

Key points:

  • commercial tenants and landlords can continue to access dispute assistance and free mediation until 30 April 2021
  • small businesses can continue to lodge small business tenancy disputes
  • the response period or extension period have not changed for affected lease disputes.

If your business has suffered a reduction in turnover due to the COVID-19 emergency during the response period or extension period, you may be eligible to negotiate rent relief with your landlord under the Regulation. If you are not eligible under the Regulation, tenants and landlords can use the code as a guide to negotiate an alternative arrangement.

The COVID-19 Emergency Response Act 2020 (the Act) and the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (the Regulation) sets out Queensland's arrangements for small and medium-sized enterprise (SME entity) commercial leases affected by the COVID-19 emergency. This gives effect to the National Cabinet Mandatory Code of Conduct – SME commercial leasing principles during COVID-19 (PDF, 235KB) (the code) in Queensland.

Transcript of video

Under the Regulation, a landlord cannot take a prescribed action against a tenant with an affected lease who fails to pay rent or outgoings, or is not open for trade during the response period or extension period. This includes taking such action after either of the periods. However, this does not mean that a tenant doesn't have to pay anything or otherwise comply with their lease.

Eligibility criteria

To be eligible for rent relief assistance under the Regulation, you must have an affected lease.

Your lease is an affected lease if it meets all of the following criteria:

  • It is a retail shop lease or prescribed lease (a lease, other than a retail shop lease, where the leased premises are wholly or predominantly used for carrying on a business).
  • It was current and binding on the tenant on 28 May 2020. This includes any form of lease, sub-lease, license or other agreement to occupy premises (e.g. month-to-month, verbal etc.) all of which are considered binding on the tenant.
  • The tenant under the lease is a small and medium enterprise (SME entity) that carried on a business (or non-profit activity) in the current financial year and had a turnover that was:
    • less than $50 million for the 2019–20 financial year
    • and/or
    • likely to be less than $50 million for the 2020–21 financial year.
  • The tenant under the lease is eligible for, but not necessarily enrolled in, the JobKeeper Payment scheme (specifically, for the response period: the tenant meets rules 7 and 8 of the scheme, for the extension period: is eligible for the scheme for the period starting on 28 September 2020 and ending on 4 January 2021).

Negotiating rent and other conditions of the lease

The Regulation sets out the process for tenants and landlords to negotiate the rent and other stated conditions of an affected lease during the response period or extension period.

Before starting negotiations, each party should work out what amount of rent reduction is reasonable for their own financial circumstances. You can contact the free Small Business Financial Counselling service closest to you for help to work out your financial position.

Under the Regulation, both parties are required to cooperate and act reasonably and in good faith in all discussions and actions to mitigate the effect of the COVID-19 emergency. There are consequences if either party does not make a genuine effort to negotiate.

There are 5 phases that tenants and landlords should follow when negotiating rent relief.

Phase 1: Ask to negotiate

Either the tenant or the landlord may ask another party to the lease to negotiate the rent and other stated conditions of the lease. Your request must include a clear statement about the terms of the lease you are seeking to negotiate (e.g. rent, outgoings, extending the lease term).

You can use our templates to ask to negotiate:

If you are a landlord and your tenant refuses to respond or negotiate, you can use our email template to write to your tenant to explain what the consequences could be.

If you are a tenant and your landlord refuses to respond or negotiate, you can follow the steps to resolving business disputes.

Financial counselling

Operating a small business can be challenging and sometimes results in financial stress. You can access the free Small Business Financial Counselling service to:

  • negotiate with lenders and creditors
  • confidentially assess and prepare reports on your current financial position, cash flow and viability
  • identify appropriate business options and help you develop an action plan
  • prepare you for meetings with financiers
  • identify the need for advice from, and prepare for meetings with, professional service providers from both the private and government sectors.

Phone 1300 732 777 to access the Small Business Financial Counselling service.

Phase 2: Share information

If you receive a request to negotiate from your tenant or landlord, you must share information that is true, accurate, correct and not misleading. The information must also be sufficient to enable all parties to negotiate in a fair and transparent way.

The information shared must not be disclosed by either party except where permitted under section 20 of the regulation (the maximum penalty for this offence is 20 penalty units).

Examples of information tenants could share

  • A statement explaining why your lease is an affected lease.
  • Accurate financial information or statements about the reduction of turnover of your business carried on at the premises and, if different, your business overall. For example:
    • the business activity statement(s) (BAS) for the relevant month(s) during the response period or the extension period and the BAS for the same month(s) in the previous year. If you do not submit BAS, a statement containing the equivalent financial information is required
    • expenses that have substantially increased (or have been deferred, waived or suspended) due to the COVID-19 emergency.
  • Evidence showing that your business is an SME entity.
  • Evidence that your business is eligible for the JobKeeper Payment scheme (e.g. results of the Australian Taxation Office (ATO) JobKeeper turnover test, JobKeeper enrolment receipt from the ATO).
  • Information about any steps you have taken to reduce the financial impact of the COVID-19 emergency (e.g. government financial assistance applied or received).

Examples of information landlords could share

  • A statement explaining the costs of owning and maintaining the leased property.
  • Accurate financial information or statements about your financial position in relation to the leased premises. For example:
    • the business activity statement(s) (BAS) for the relevant month(s) during the response period or extension period or, if you don't use BAS reporting, a statement containing the equivalent financial information
    • expenses that have substantially increased (or have been deferred, waived or suspended) due to the COVID-19 emergency.
  • Information about any steps you have taken to reduce the financial impact of the COVID-19 emergency (e.g. government financial assistance applied for or received).

Information neither party should ask for

  • Future cash flow projections
  • Balance sheets, profit and loss or year to date financials
  • The tenant or landlord's bank balance
  • Trust account information
  • Evidence of refusal or ineligibility for government financial assistance packages
  • Requiring a party to have financial information verified, examined, assured, or audited by a third party such as an accountant
  • A letter of comfort or similar from an accountant on the financial information
  • Documentation that is considered onerous, for example where the provision of the information involves incurring a fee to produce or access

Phase 3: Landlord makes an offer

The landlord must make an offer about rent (and other lease conditions) during the response period and/or the extension period to the tenant within 30 days of sufficient information being received.

During the response period at least 50% of the rent reduction offered must be waived as a discount, and the remainder of the reduction deferred to be repaid by instalments after 30 September 2020. For offers related to the extension period this requirement doesn't apply. Nothing prevents a landlord and tenant from negotiating a different way of passing on a reduction.

As a landlord, you should consider your own financial position when offering an amount of rent reduction, however your offer must be made in good faith and generally proportionate to the tenant's loss of turnover.

Rent reductions for affected leases can cover all or part of the response period and/or the extension period. Rent reductions could be set or variable to allow for changes in the tenant's turnover during this time (there is no minimum or maximum reduction amount).

If a landlord has benefited from a reduction in outgoings for the leased premises, these benefits should be passed on to the tenant (as an example of good faith). Nothing prevents a landlord and tenant from negotiating a different way of passing on the benefit of a reduction.

Phase 4: Negotiate

Once the landlord has made an offer, the tenant may accept it or the parties may negotiate the rent reduction and any proposed changes to the lease (e.g. adjusting outgoings, reducing services, extending the term).

During negotiations, both parties must cooperate and act reasonably and in good faith to make a genuine effort to reach an agreement.

When negotiating rent and other conditions, you should consider that:

  • neither party will benefit from mitigating the impact of the COVID-19 emergency
  • reducing rent and outgoings will improve recovery and benefit you both in the long term
  • every lease has different conditions and it's important to be clear about any changes.

Use our commercial rent relief negotiation checklist to help with these negotiations.

Phase 5: Record the agreement

Once you have reached an agreement about a rent reduction and any proposed changes to other stated conditions, it must be recorded in writing. This can be in the form of a variation to the lease agreement or in another way such as a simple exchange of emails or a more formal settlement agreement signed by the parties.

The agreement should include:

  • that the agreement is made under the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020
  • when the agreement starts and finishes (including the months of the response period and/or extension period that it relates to)
  • the amount and arrangements of the rent reduction (e.g. waivers, deferrals, timing)
  • the arrangements for repaying any deferred rent (e.g. when repayments start, the amount and frequency of the repayments, and the final repayment date)
  • any changes to other lease conditions (e.g. outgoings, services, lease term)
  • if the agreement will be reviewed (e.g. who will review it, how, when and based on what information)
  • what happens if either party does not uphold their part of the agreement.

Use the rent relief negotiation checklist to help with the negotiation process.

If you are unable to negotiate an agreement, you can follow the steps to resolving business disputes.

Example rent relief negotiations

Use the following examples to understand how to negotiate a rent reduction. Read our definitions list for explanations of terms used in these examples.

Example 1: Basic rent reduction

Julia is a tenant of an affected lease and has approached her landlord Bec for reduction of rent during the response period and the extension period.

Julia has provided sufficient information to Bec who is satisfied Julia's business has experienced a 30% decline in usual turnover and she can accommodate a reduction for a little while.

Bec responds to Julia and offers to reduce the rent by 30% (being the portion of reduced turnover) for the period 29 March to 31 December 2020.

For the response period, 15% of Julia's usual rent is waived and while deferred payments don't need to start for 2 years, they agree that the remaining 15% reduction that is deferred will be repaid in instalments after 30 September in line with Bec's mortgage deferral. For the extension period, they agree on a 20% waiver until 31 December.

Julia continues to pay the balance of her rent to Bec as usual and will start paying back the deferred rent after 30 September. Bec and Julia negotiate and agree upon the value and length of time for those instalments to be paid and make an agreement of the arrangements in writing via email.

Example 2: Considering both tenant's and landlord's financial circumstances

Lucas runs a gym and has experienced a 100% reduction in turnover since being forced to close because of COVID-19 restrictions during the first few months of the response period.

Lucas emailed the landlord Malcolm asking to negotiate the rent, namely a 100% rent reduction. Malcolm considers this request, and his own circumstances. Malcolm explains to Lucas that he has to pay a mortgage, rates and insurance on the property and that the rent is his only form of income as a retiree. Malcolm provides information to Lucas demonstrating that he has unavoidable costs for the property.

Malcolm offers Lucas a 75% rent reduction comprised of a 40% waiver and a 35% deferral to be paid after 30 September 2020. Lucas and Malcolm enter negotiations and go back and forth. Lucas and Malcolm decide upon an 80% rent reduction comprised of 45% waiver and 35% deferral. Lucas continues to pay 20% of the rent until 30 September.

Lucas has been able to run one-on-one personal training sessions and approached his bank for a small overdraft. Lucas starts to repay the deferred amounts after 30 September, spread over a 2 ½ year period as agreed.

During the extension period, Lucas' business has recovered (as he now runs online classes and boot camps outside) and he now only has a 20% reduction in turnover so returns to paying full rent as Malcolm's costs have not changed. In response to Lucas' good faith, Malcolm offers to help out a little more by covering some of the outgoing costs until 31 December 2020.

Example 3: Multiple outlets and landlords

Barb owns a business that is the tenant on leases for a pub and a detached bottle shop. The pub has closed due to COVID-19 restrictions and has had a 100% decline in turnover during the first few months of the response period. The bottle shop is still open and continues to suffer a 20% decline in turnover.

According to the JobKeeper turnover test, Barb's whole business (the lessee under the leases) has suffered a combined decline of 60% and she has therefore determined her business is eligible for JobKeeper. Barb's business meets the other requirements to be considered an affected lease.

Barb phoned George, the landlord of the bottle shop and asked to negotiate a rent reduction. Barb provides the information used in the JobKeeper test that shows her whole business has suffered a 60% decline in turnover. George has had a reduction in some outgoings which he has passed onto Barb already.

George takes this into account and his own financial position and decides to offer Barb a 40% reduction in rent for the detached bottle shop, comprised of 20% waived rent and 20% deferred rent for the response period. In negotiating, Barb, shows George some information from her bank and explains that a 40% rent reduction is unaffordable.

They keep negotiating until George and Barb settle on a 50% rent reduction comprised of 30% waived rent and 20% deferred rent for the response period. As a result, Barb only has to pay 50% of the bottle shop rent to George during this time and will repay the deferred amount later.

At the same time Barb approaches the lessor of the pub, Venue Holdings, for a rent reduction. Venue Holdings offers to reduce the rent by 100% while the pub is closed but asks Barb to keep paying outgoings during the response period. They agree to waive 75% of the rent with the remaining 25% deferred until after the pub reopens for business. In the meantime, Barb continues to pay the outgoings for the pub as required by the lease.

During the extension period, Barb reviews her financial position and notes her business is still eligible for JobKeeper, her pub is still down on turnover, however the bottle shop is booming. The bottle shop landlord, George, advises Barb they will not negotiate any further reductions which Barb accepts. Barb contacts Venue Holdings and provides an update on her businesses. Venue Holdings offers to continue a reduced rate of rent. Barb offers to replace some of the amount being waived by Venue Holdings, with it being deferred instead.

Example 4: Month-by-month review

Kylie is unable to work but owns a shed she rents out to a printing business owned by Sharon. This and a small monthly payment from her superannuation fund are Kylie's sole sources of income. Kylie hasn't heard from Sharon since she rang and left a message saying she managed to pay April's rent but couldn't pay rent for May. Kylie has received no rent since then.

Kylie cannot pay her bills so she emails Sharon explaining that she would like to negotiate the rent for the response period under the regulations. She asks Sharon to provide some evidence of her decline in turnover and other information showing the lease is an affected lease. Sharon has been struggling as jobs have dried up in her small regional centre and shares information with Kylie showing that her turnover has reduced by an average of 60% since April.

Kylie offers Sharon a 60% reduction in rent for the response period of which 30% is waived and 30% is deferred, to be paid back from 1 October 2020 as an extra $400 each month until paid off. Kylie goes on to offer to review the situation for the extension period on a monthly basis provided Sharon provides her turnover figures on the last day of each month but that she cannot continue to offer a large reduction due to deferred loan repayments restarting.

Kylie explains that for the extension period the offer is a 10% waiver of rent for every 20% reduction in turnover with the balance of rent and deferred repayments to be paid as normal. Sharon has started adjusting her business to find new revenue streams and to reduce costs and recognises that if Kylie cannot make her loan repayments then the lease will be in jeopardy. They finalise their agreement and ask a third party to record it in a settlement agreement which they both sign.

Example 5: Failure to respond by tenant

Grace is the landlord of a restaurant run by Luca. Luca had to close the restaurant in March and April during the response period. When Luca closed, he paid no rent for April and re-opened the restaurant for takeaway service in May. Luca has misunderstood the Prime Minister's announcement about commercial rent relief and thinks he is automatically entitled to a 50% discount of rent. He doesn't realise rent relief is a negotiated agreement between a landlord and tenant. Luca has told Grace that he only needs to pay 50% rent until the end of September.

Grace calls Luca to discuss the rent and refers him to the Small Business Commissioner's website, pointing out the 5 phases of negotiating rent relief under the Regulation. As per phase 2, Grace requests to see Luca's BAS for the months he is seeking rent relief in 2020, compared to the same periods in 2019, so that she can see the portion by which Luca's turnover has declined. Luca refuses to share this information. He (incorrectly) insists that he is entitled to a 50% rent discount until Christmas and tells Grace she can't do anything about it.

Grace writes to Luca and tries to phone him several times to try and negotiate a rent reduction for the response period and extension period however Luca refuses to respond to the emails and won't answer his phone. Grace decides to use the email template provided on the Small Business Commissioner's website to write an email to Luca. The email explains the changed rights and responsibilities of each party under the Regulation. Grace encourages Luca to communicate and explains to him that he is not complying with his obligations under the Regulation and she could lawfully evict him.

When Luca receives Grace's email, he checks the Small Business Commissioner's website and realises he was wrong. Luca sees that he should have asked for a rent reduction, shared some reasonable information and negotiated a fair agreement with Grace. Luca also realises that Grace could lawfully evict him as she has made a genuine attempt to negotiate but he has not cooperated or acted in good faith.

Luca decides to share the requested information and phones Grace the next day to apologise and ask when she would be available to negotiate an agreement.

Other information for landlords and tenants

Use the following information to understand the other requirements for commercial leasing that also apply under the Regulation.

Taking legal action

A landlord cannot take a prescribed action against a tenant with an affected lease for failing to pay rent or outgoings, or for not being open to trade, during the response period or extension period.

Prescribed actions include:

  • recovery of possession
  • termination of the lease
  • eviction of the tenant
  • exercising a right of re-entry to premises
  • seizure of any property, including for the purpose of securing payment of rent
  • forfeiture
  • damages
  • the payment of interest on, or a fee or charge relating to, unpaid rent or outgoings
  • a claim on a bank guarantee, indemnity or security deposit for unpaid rent or outgoings
  • the performance of an obligation by the tenant or another person under a guarantee under the lease
  • exercising or enforcing another right by the landlord under the lease or other agreement relating to the leased premises.

If you have made a genuine attempt to negotiate and your landlord has proposed to take a prescribed action against you, you can use our email template to write to your landlord. If the landlord takes a prescribed action during this time, you can apply directly to the Queensland Civil and Administrative Tribunal (QCAT), or make an application to the appropriate court for an order to stop your landlord taking this action.

You can follow the steps to resolving business disputes and, if you are still unsure about what to do, the Queensland Small Business Commissioner (QSBC) encourages you to seek independent legal advice about your options.

Expiring leases

If your lease expired or was terminated before 28 May 2020, it is not an affected lease and is not covered by the Regulation.

If you have an affected lease expiring between 28 May and 31 December 2020, it can be extended if both the landlord and tenant agree. Extensions must not be on terms and conditions that are less favourable than before 28 May 2020. If a waiver or deferral of rent is offered by the landlord, a tenant with a fixed term lease must be offered an extension to the term for the same amount of time as the waiver or deferral.

A landlord is not obliged to renew a fixed-term lease that expires naturally (unless they are required to offer an extension under section 18). A landlord can terminate a periodic (month-to-month) lease for any reason (other than for not paying rent or outgoings or not being open for trade during the response period or extension period).

Lease breaches

During the response period and extension period (from 29 March to 31 December 2020), a landlord can take action against a tenant (e.g. eviction) provided it does not relate to not paying rent, not paying outgoings, or not being open for trade during the response period or extension period. For example, a landlord can take action if the tenant has:

  • unpaid invoices before 29 March 2020
  • otherwise breached the lease
  • wilfully damaged the property.

Reduced services

If a tenant with an affected lease is unable to operate their business for any part of the response period or the extension period (from 29 March to 31 December 2020) because of the COVID-19 emergency, the landlord may cease or reduce any service to the premises. Any reduction in service must be reasonable in the circumstances and is subject to any reasonable request by the tenant.

Repaying deferred rent

Tenants who have negotiated a rent reduction with deferred rent during the response period do not need to start repaying the deferred rent until after 30 September 2020, or for deferrals during the extension period until after 31 December 2020 (unless agreed otherwise).

Deferred rent can be repaid by instalments, using a method both parties agree to. The repayments can be spread over a period of at least 2 years but no more than 3 years.

Despite the lease provisions (or any lawful termination of the lease), the landlord may continue to hold the security deposit until the deferred rent has been repaid; however, provided the tenant complies with the repayment conditions, the landlord must not charge interest or any other fee on deferred rent.

Definitions

Affected lease

Your lease is an affected lease if it meets all of the following criteria:

  • It is a retail shop lease or a prescribed lease (a lease, other than a retail shop lease, where the leased premises are wholly or predominantly used for carrying on a business).
  • It was current and binding on the tenant on 28 May 2020. This includes any form of lease, sub-lease, license or other agreement to occupy premises (month-to-month, verbal etc.), all of which are considered binding on the tenant.
  • The tenant under the lease is a small to medium enterprise that carried on a business (or non-profit activity) in the current financial year and had a turnover that was:
    • less than $50 million for the 2019–20 financial year
    • and/or
    • turnover is expected to be less than $50 million for the 2020-21 financial year.
  • The tenant is eligible for, but not necessarily enrolled in, the JobKeeper Payment scheme (specifically, for the response period: the tenant meets rules 7 and 8 of the scheme, for the extension period: is eligible for the scheme for the period starting on 28 September 2020 and ending on 4 January 2021).

Note: Read section 5 of the Regulation for more detail about affected leases.

Extension period

The extension period starts at the beginning of the day on 1 October 2020 and ends at the end of the day on 31 December 2020.

Prescribed action

A prescribed action is the starting of court or tribunal (such as the Queensland Civil and Administrative Tribunal (QCAT)) proceedings for any of the following lease (or other agreement) situations:

  • recovery of possession
  • termination of the lease
  • eviction of the tenant
  • exercising a right of re-entry to premises
  • seizure of any property, including for the purpose of securing payment of rent
  • forfeiture
  • damages
  • the payment of interest on, or a fee or charge relating to, unpaid rent or outgoings
  • a claim on a bank guarantee, indemnity or security deposit for unpaid rent or outgoings
  • the performance of an obligation by the tenant or another person under a guarantee under the lease
  • exercising or enforcing another right by the landlord under the lease or other agreement relating to the leased premises.

During the response period, if a tenant with an affected lease fails to pay rent or outgoings, or is unable to open, the landlord cannot take a prescribed action. If an action relates to another matter or is taken by mutual agreement (such as under a negotiated settlement), it is not a prescribed action.

Response period

The response period starts at the beginning of the day on 29 March 2020 and ends at the end of the day on 30 September 2020.

Good faith

The Queensland Small Business Commissioner (QSBC) considers the following to be examples of acting in 'good faith':

  • Parties responding to each other's requests, even if the response is that they view the request as unreasonable (with an explanation as to why they have that view)
  • Being honest and providing information that is accurate
  • Following the statements and recommendations of the QSBC
  • A landlord applying for reductions in outgoings (e.g. land tax relief) if available so that a tenant can benefit from that reduction
  • A tenant submitting information to the landlord which confirms their eligibility for the JobKeeper Payment scheme including the turnover figures they used and the periods they compared
  • A tenant providing the receipt from the Australian Taxation Office (ATO) demonstrating eligibility for the JobKeeper scheme
  • A tenant or landlord willing to share, in a proportionate, measured manner the financial risk and cash flow impact during the COVID-19 period
  • Cooperating and acting reasonably in actions and discussions relating to affected lease negotiations
  • Cooperating and acting reasonably in actions and discussions relating to disputes.

The Queensland Small Business Commissioner considers the following as examples of not acting in 'good faith':

  • A landlord or tenant demanding an unreasonable amount of information
  • Harassing, intimidating or assaulting the other party
  • Making onerous requests for documentation (especially if it involves paying a fee)
  • Refusing to respond to a reasonable request for information
  • A landlord failing to make an offer in response to a tenant's request to negotiate
  • A tenant refusing to share information about their eligibility for JobKeeper
  • A tenant refusing to share information to substantiate a decline in turnover
  • A landlord not passing on any reductions in outgoings
  • A tenant or landlord agreeing to mediation but then not participating
  • Not making a genuine attempt to negotiate an affected lease
  • Not making a genuine attempt to resolve an eligible lease dispute
  • Not cooperating and acting reasonably in actions and discussions relating to disputes.

Small to medium enterprise

Small to medium enterprises (also knows as SME entities) are defined generally as businesses (or non-profit bodies) that had a turnover of:

  • less than $50 million for the 2019–20 financial year
  • and/or
  • likely to be less than $50 million for the 2020–21 financial year.

You can also read section 5 of the Guarantee of Lending to Small and Medium Enterprises (Coronavirus Economic Response Package) Rules 2020 for more information, including examples of what makes up 'annual turnover'.

Note: The Queensland Small Business Commissioner provides general information and guidance in relation to small businesses in Queensland. We do not provide specific financial or legal advice. We cannot compel people to do certain things and cannot make rulings or decisions about disputes.

Also consider...