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Negotiating commercial rent relief during COVID-19

If your business has been affected by COVID-19, you may be able to negotiate with your landlord or tenant for rent relief or other support in relation to your commercial lease, or seek help with dispute resolution. Legislation is in place to help both parties work together to mitigate the impact of the COVID-19 emergency.

The Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (the Regulation) came into effect on 28 May 2020. The Regulation implements the National Cabinet mandatory code of conduct - SME commercial leasing principles during COVID-19 (PDF, 235KB) (the Code) in Queensland.

The regulation has effect from 29 March to 30 September 2020 (the COVID-19 emergency response period). During this period, if a tenant with an affected lease fails to pay rent or outgoings, or is unable to open, the landlord cannot start court or tribunal proceedings (known as a prescribed action).

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If your lease is not eligible for support under the Regulation or Code, you can still use this information as a guide to help cooperate and negotiate in good faith with your landlord or tenant to reach an agreement that reduces the impact of the COVID-19 emergency on your business.

Eligibility criteria

To be eligible for lease assistance under the Regulation and Code, 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
    • 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
    • likely 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*.

*In regards to the extension of the JobKeeper scheme, the Queensland Small Business Commissioner advises that, for the moment, the affected lease eligibility rules remain the same. This information will be updated when the impact of any JobKeeper rule changes are known.

Negotiating rent and other lease conditions

The Regulation sets out the process for tenants and landlords to negotiate the rent and other conditions of a small business tenancy or affected lease.

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

There are 5 phases you should work through when negotiating rent relief.

Phase 1: Ask to negotiate

Start the process by writing to the other party and asking to negotiate the rent and other conditions (e.g. outgoings) of the lease. Either party can start negotiations.

If you are the tenant and start the process, you must also demonstrate how:

  • your lease is an affected lease
  • your business has experienced a loss of turnover.

If you want to include other conditions of the lease in negotiations, you should make this clear to the other party.

Use our letter/email templates to request a negotiation:

Both parties must cooperate, act reasonably and in good faith, and make a genuine effort to negotiate. If either party refuses to reply to requests or refuses to negotiate, there are actions that can be taken and potential consequences.

Landlords can use our email template to write to a tenant that refuses to respond or negotiate. It explains the options available to landlords when a tenant refuses to negotiate or respond.

If you are a tenant and your landlord refuses to respond to requests to negotiate a rent reduction, you can seek assistance resolving the dispute.

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 sufficient information

If you receive a request to negotiate from your tenant or landlord, you must act in good faith and share information for fair and transparent negotiations.

This allows both parties to understand the impact of COVID-19 on each other. The information you share must be true and accurate, and sufficient to inform the negotiations.

You must only use or share the information you receive from your tenant or landlord for lease negotiations. Section 20 of the regulation explains very limited exceptions to this, and you could be penalised if you don't comply.

Examples of information tenants could share

  • A statement explaining why your lease is an affected lease
  • Accurate financial information or statements about reduction of turnover of your business carried on at the premises; and (if different) your business overall. For example:
    • a statement of COVID-19 restrictions imposed on your business that reasonably affected turnover in 2019–20 financial year
    • the business activity statement/s (BAS) for the relevant month/s during the response period and the BAS for the same month/s in 2019 (or, if you do not submit BAS, a statement containing the equivalent financial information)
    • expenses that have substantially increased (or have been deferred, waived or suspended) due to COVID-19
  • Evidence showing your turnover did not exceed $50 million in the 2018–19 financial year, or is unlikely to exceed that amount in the 2019–20 financial year).
  • Evidence that you are eligible for the JobKeeper Payment scheme, for example:
    • results of the ATO JobKeeper turnover test
    • JobKeeper enrolment information (e.g. receipt from the ATO)
    • other JobKeeper eligibility information.
  • Information about what steps you have taken to reduce the financial impact of COVID-19. For example:
    • a summary of government financial assistance you sought and the outcome
    • material provided by a government agency about financial assistance package availability, eligibility or acceptance.

Examples of information landlords could share

  • Accurate financial information or statements about your financial position. For example:
    • a statement explaining the costs of owning and maintaining the property
    • a business activity statement (BAS) or, if you do not use BAS reporting, relevant financial data from an accounting system or lodged tax returns
    • a statement of COVID-19 restrictions (if any) imposed on you that reasonably affected your financial position in the 2019–20 financial year.
  • Information provided to a financial institution.
  • Expenses that have substantially increased (or have been deferred, waived or suspended) due to COVID-19.

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 to the tenant within 30 days of sufficient information being received.

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.

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 (29 March to 30 September 2020). 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). However, nothing prevents a landlord and tenant from negotiating a different way of passing on the benefit of a reduction.

Phase 4: Negotiate the rent payable and other stated conditions

Once the landlord has made an offer, it is up to both parties to negotiate a mutually agreeable outcome for rent reduction and other changes to the lease.

Both parties must cooperate, act reasonably and in good faith and make a genuine effort to reach an amicable outcome.

When negotiating rent reductions, you should consider that:

  • rent reductions and other changes to the lease will help both parties to recover and rebuild as quickly as possible
  • each lease may treat outgoings differently and it is important to address how you wish to modify treatment of outgoings when negotiating a rent reduction
  • if a landlord has benefited from a reduction in any outgoings, these benefits should be passed on to the tenant as an example of good faith
  • payment of outgoings by a tenant may be negotiated as part of a rent reduction.

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

Phase 5: Document the agreement

Once an agreement has been reached, it is important to record the terms of the rent reduction, and any other conditions, in writing. This can be a variation to the lease agreement or as a separate agreement. Documenting an agreement can be as simple as an exchange of emails.

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
  • the amount of the rent reduction (including the portion to be waived and the portion being deferred)
  • the arrangements for repaying deferred rent (i.e. when repayments start, the amount and frequency of the repayments, and by when it has to be fully repaid)
  • any changes to other lease conditions (such as outgoings)
  • when the agreement will be reviewed, including who will do that, 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 seek assistance resolving the dispute.

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.

Julia has provided sufficient information to Bec who is satisfied Julia's business has experienced a 30% decline in usual turnover. Bec responds to Julia and offers to reduce the rent by 30% (being the portion of reduced turnover) for the period 29 March to 30 September 2020.

15% of Julia's usual rent is waived, and the remaining 15% reduction is deferred to be repaid in instalments after 30 September.

Julia continues to pay 70% of her usual rent to Bec and must start paying back the deferred rent after 30 September. Bec and Julia will 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.

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.

Lucas has written to 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 and a half year period as agreed.

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. The bottle shop is still open and has suffered 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 contacts George, the landlord of the bottle shop and asks 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. 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. 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 that 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.

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 for June now either.

Kylie is worried about paying her bills so writes to Sharon in an email explaining she would like to negotiate the rent under the new regulations and asks Sharon to provide some evidence of her decline in turnover and some other information showing the lease is an affected lease. Sharon has been struggling as jobs have dried up in the small regional centre. Sharon shares with Kylie statements from her accountant that her turnover has reduced by 56% in April and 64% in May and she shares the other information requested.

Kylie offers Sharon a 60% reduction in rent for May, June and July. The offer email says that 30% of the rent is waived and 30% is deferred, to be paid as an extra $100 each month until paid off. Kylie goes on to offer to review the situation for August on 14 July if Sharon can get another statement from her accountant like she provided before.

Kylie explains the 40% of rent that is due from May and June is needed for expenses and asks that be paid immediately. Sharon explains she can't afford the whole reduced amount immediately for May and June but could pay two-thirds now and the other third in a fortnight. In addition Sharon will pay the 40% of rent due for July, on the usual day (1 July). They agree and exchange emails to confirm the arrangement.

On 14 July Sharon shares the statement from her accountant and this shows the decline in turnover for June was 49% compared to the same month last year. Kylie and Sharon agree on a 50% rent reduction for the August rent. They agree September's rent is to be reviewed on 14 August in the same way as before.

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

From 29 March to 30 September 2020, a landlord cannot take a prescribed action against a tenant for not paying rent or outgoings, or for not being open to trade. 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 your landlord starts a court or tribunal action during this time, you can apply to the Queensland Civil and Administrative Tribunal (QCAT) or the appropriate court for an order to stop your landlord taking this action.

If you have made genuine attempts to negotiate a rent reduction and subsequently had a prescribed action taken against you since 28 May 2020 for not paying rent or outgoings or not being open, use our email template to write to the landlord. Seek legal advice as you may be able to apply to QCAT using form 41 and form 34 for an order to stop the action.

For small business tenancy disputes and affected lease disputes from 28 May to 30 September 2020, use the dispute assistance referral tool.

Expiring lease agreements

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

If you have an affected lease expiring between 28 May and 30 September 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 deferral of rent is offered by the landlord, the tenant must be offered an extension to the lease for the same period as the deferral.

If an affected lease expires between 28 May and 30 September 2020, a landlord must not take a prescribed action during that period.

Lease breaches during COVID-19

From 29 March to 30 September 2020, a landlord can take action against a tenant (e.g. eviction), provided it does not relate to the non-payment of rent or outgoings, or for not being open for trade. 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 by the landlord

If a tenant under an affected lease is unable to operate their business at any stage from 29 March to 30 September 2020 due to COVID-19 restrictions imposed, the landlord may opt to cease or reduce any service to the premises to contain costs. Any reduction in service must be reasonable in the circumstances and in response to a reasonable request from the tenant.

Repaying deferred rent

Tenants who have negotiated a rent reduction with deferred rent do not need to start repaying the deferred rent until after 30 September (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 2018–19 financial year
    • and/or
    • less than $50 million for the 2019–20 financial year.
  • The tenant is eligible for, but not necessarily enrolled in, the JobKeeper Payment scheme*.

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

*In regards to the extension of the JobKeeper scheme, the Queensland Small Business Commissioner advises that, for the moment, the affected lease eligibility rules remain the same. This information will be updated when the impact of any JobKeeper rule changes are known.

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 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.

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.

Small to medium enterprise

Small to medium enterprises (also knows as SME entities) are defined 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.

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