Retail and commercial lease disputes in Queensland

Retail and commercial lease disputes in Queensland

ByMark de Valance

Common dispute types and how they are handled

NOTE: This article should not be construed as legal advice and you are always strongly advised to seek independent professional legal advice that relates to your specific situation.

Types of dispute

Lease disputes between landlords and tenants of commercial or retail space are generally triggered by one (or more) of eight main factors. These are…

1) Rent increases
Leases generally include reference to some mechanism for increasing rent, for example reference to ‘market rates’ or related to changes in CPI (Consumer Price Index) and/or a fixed percentage increase. As a general rule applicable to retail leases only (not commercial leases), market rate reviews must be conducted by a ‘specialist retail valuer’ and can still be disputed by either party. More general clauses based on CPI or percentage increases (called ‘ratchet clauses’) can also be challenged.

2) Lease extension options
These disputes relate to the timing of the tenant giving notice to the landlord of their intention to take up the option. The timing of taking up options is generally covered in the lease agreement, but not always, in which case the general rule is that the tenant can continue to occupy the premises for up to 6 months after the landlord indicates their intention to either continue or terminate the lease.

3) Lease assignment refusal by landlord
Landlords must ordinarily accept an assignment of a lease, ie where the existing tenant wants to have another person/entity take over their lease. In specific circumstances a landlord can refuse, for example where the new proposed tenant is not ‘experienced’ or ‘financially sound’. Where an assignment goes ahead, the landlord generally cannot change the terms of the lease.

4) Guarantor liability
This is where a tenant provides a guarantor – another person or entity – for their obligations under the lease if they cannot meet them themselves. This can be a complex area and depends on the precise agreements between the tenant and the guarantor and between the landlord and the tenant.

5) Interruption of access to leased space
Interruption of trade due to, for example, demolition of whole or part of the building, refurbishments or changes to customer access and flow through a shopping centre, will generally result in some form of compensation payable by the landlord to an affected tenant. There are often clauses in retail leases covering for example demolition and relocation, but not always.

6) Shopping centre/precinct tenancy mix changes
Landlords are entitled to decide what types (and brands) of retail they want in their retail spaces in a shopping centre or strip, however it is sometimes possible – in very specific circumstances – to challenge these where the landlord’s decision is considered ‘unconscionable’ by a court or at dispute resolution.

7) Making good at end of lease
Most leases state that an outgoing tenant must ‘make good’ the leased space, ie return it to the condition it was in when they first occupied the space. These conditions must be ‘reasonable’!

8) Repairs
This may one of the more common disputes between tenants and landlords where there is a disagreement as to who should pay for repairs, whether these are capital or structural repairs. Issues relating to old or malfunctioning air conditioning units or electrical services are very common.

How disputes are handled

If a landlord and tenant cannot come to an agreement on a dispute, the next step would normally be to take action in court. However, since December 2009, a body called QCAT (Queensland Civil and Administrative Tribunal) has taken over part of the function of the courts for a very wide range of disputes, including retail shop leases.

Landlords and tenants must take any dispute involving a debt of $25,000 or less through the QCAT process, which involves an initial mediation process and, if this is unsuccessful, a QCAT hearing.

The benefits of this new process are that (in theory) the QCAT procedure is 1) less expensive than going to court and 2) quicker. However at the moment, due to current COVID-19 rules, QCAT is swamped with COVID-19 related arbitrations and so the whole process has slowed considerably.

It is also worth noting that QCAT is consistently ‘tenant friendly’.

As a landlord, sometimes the quickest and most immediately effective way of dealing with a serious dispute with a tenant (for example rent arrears) is to change the locks, however it must be borne in mind that taking this action may well have substantial consequences at a later dispute resolution or court hearing.

More Info
QCAT Retail Shop Lease Disputes – https://www.qcat.qld.gov.au/matter-types/retail-shop-lease-disputes
Retail Shop Leases and Other Commercial Leases (COVID-19) Emergency Response Regulation 2020 – https://www.legislation.qld.gov.au/view/pdf/asmade/sl-2020-0079
Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Amendment Regulation 2020 – https://www.legislation.qld.gov.au/view/whole/html/asmade/sl-2020-0234