In February 2023, the Property Law Bill was introduced into Queensland Parliament and, when passed, will completely repeal the Property Law Act 1974. This will mark a significant change to property law in Queensland. It is expected that the changes will pass in the next couple of months and come into effect within a further six to twelve months.
In this article we will briefly consider how the changes will affect motel leases. Historically, motel leases have been a matter of negotiation and agreement between the parties. With the coming changes, there will be a number of new sections that will override that position, impacting both on new leases and those that are already in place.
Landlords to act reasonably to tenant requests
In the past, where a lease contained a provision requiring the tenant to seek the consent of the landlord, this consent was generally able to be provided in the absolute discretion of the landlord. The amendments will remove the landlord’s right of discretion.
The amendments proposed will cover requests from a tenant in relation to an assignment, sublease, parting with possession, change to the permitted use, creation of a mortgage, or to carry out alterations or carrying out works. Any of these requests will now mean that:
- the tenant is to give the landlord a proposal notice with all information required by the lease;
- further information necessary for the decision can be requested by the landlord (by giving a notice);
- a landlord is required to give a decision notice within one month of the landlord receiving all necessary information (the parties can agree to an extension of the date for the decision notice);
- the decision notice must state any conditions of the approval and if refused, the reasons for the refusal.
If a landlord fails to respond within the timeframe required, the tenant will have the same rights as if the request had been unreasonably withheld.
These provisions will not be able to be excluded and will apply from the commencement of the new legislation (regardless of when the lease was entered into). Please note that the legislation will not apply where any such actions are strictly prohibited by the lease. It is only intended to set a framework for consent where the lease allows actions with consent.
In the context of motel leases, the amendments will impose formal notices and timeframes that have not existed in the past, and will need to be factored into the transaction when the consent of the landlord is required to the assignment of a lease.
Assignment of all covenants
In a more technical, but very significant, change to the existing law, the assignee will take the benefit and burden of all lease terms. Previously this has been achieved by landlords requiring the incoming assignee to enter into a deed of covenant agreeing to be bound by all of the terms of the lease. Now this will happen by way of legislation, and a deed will only be required to carve out any agreement between the parties that certain lease terms do not apply.
Release on assignment
As the law currently stands, when a lease is assigned, past tenants and guarantors remain liable for any breaches of the lease by future tenants. If the lease is assigned multiple times, there can be a number of past tenants and guarantors remaining liable. In another significant change, the new legislation will prevent this and limit a tenant’s liability to the person they assigned to only.
For example, where tenant 1 assigns to tenant 2 – tenant 1 (and any guarantors) remain liable for the actions of tenant 2. However when tenant 2 assigns to tenant 3 – tenant 1 (and any guarantors) are released from their liability in respect of tenant 3. Again, this will not be possible to contract out of, and we expect landlords to be looking closely at the suitability of assignees and any guarantors when asked to consent to an assignment.
Relief against forfeiture
There will be new provisions introduced providing relief against forfeiture to tenants where:
- the tenant had a right to renew or extend the lease term (an option); and
- the landlord has refused to grant this right due to a failure of the tenant to comply with an obligation or condition in the lease or a notice requirement.
The most common reason for an option to be refused is that the tenant failed to exercise it within time. Whilst many motel leases have overcome this risk by including automatic options, there are plenty of leases around where there are time frames within which an option needs to be exercised.
The amendments will require the landlord, if the landlord does not intend to grant the tenant’s option or other right, to first give the tenant a notice. Following receipt of the notice, the tenant has one month to apply to the court for relief.
There are strict time frames in these new sections and if the landlord does not follow this process, they will not be able to deny the exercise of an option/right.
This will be a significant departure from the long history of the courts requiring strict compliance with any notice requirements for the exercise of an option, no matter what the mitigating circumstances.
The passing of this Bill will mean a large number of changes to the existing and long settled property law regime in Queensland. As each lease and business situation will be different, please take our comments as general guidance and contact Mahoneys if you need assistance with your motel lease or your purchase/sale.