Are you a business owner concerned about what will happen if you are unable to pay your rent amidst the COVID-19 pandemic? Or a landlord unsure of what your obligations are to your tenants in the event that they cannot meet their obligations under a lease agreement? In either scenario, it is helpful to familiarise yourself with the proposed government response, current laws surrounding forfeiture, and potential for relief against forfeiture.
On 7 April 2020, the National Cabinet announced a mandatory Code of Conduct. The Code only applies to tenants with an annual turnover of up to $50 million that are suffering financial distress or hardship as a result of the COVI-19 pandemic as defined in the Commonwealth Government’s JobKeeper programme. As Queensland has not yet changed its laws surrounding evictions, and the Code does not apply to all tenancies, it is important to understand the current risk that financially struggling businesses face from the laws surrounding forfeiture.
What is forfeiture?
Forfeiture is a method of determining a lease by the lessor retaking possession of the property following default by the tenant of an obligation. Many leases will contain an express forfeiture clause, but if they do not forfeiture can be accessed as a proprietary remedy.
The key aspects of forfeiture to keep in mind are:
1. The tenant must default on a particular kind of obligation
In order for a lease to be forfeited, the tenant must default on an obligation under the lease agreement. Under s 107(d) of the Property Law Act 1974 (Qld), default could include a one-month failure to pay rent or a two-month failure to fulfil other obligations. Importantly, lessors cannot evict tenants pre-emptively or immediately once they default on an obligation and the default must be sufficiently serious to enliven forfeiture laws.
2. If the default is waived by the lessor they cannot later try and claim forfeiture
A lessor may waive any covenant in the lease which serves to ...