Landlords to Recover Land Tax from Tenants under Draft Bill
In our Property Update of December 2008, we advised you of changes to the rates of Land Tax payable in Queensland. When announced, the increase in Land Tax rates was widely expected to adversely affect returns that Landlords were receiving from commercial, industrial and retail property.
As a further change to the Land Tax regime, the Qld Government recently released the draft Land Tax and Taxation Administration Amendment Bill 2009 (“the Bill”) for public comment. The Bill proposes to give landlords the opportunity to recover from tenants the increasing cost of outgoings from tenants in certain circumstances. This right to recovery may go some way to assisting Landlords to counteract the adverse affect of the increase in Land Tax rates.
The Current Law
Section 44A of the Land Tax Act 1915 (“the Act”) provides that:
There are provisions in the Retail Shop Leases Act 1994 and Residential Tenancies Act 1994 which also prevent the recovery of Land Tax by landlords from tenants of retail and residential premises.
The Proposed Law
Section 19 of the Bill proposes to delete section 44A of the Act with effect from commencement of the Bill (if passed). The Bill does not propose to remove the restriction on landlords from recovering Land Tax from tenants of retail and residential premises.
Assuming the Bill is passed without amendment:
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landlords may recover Land Tax from tenants under any new lease (other than a lease for retail or residential premises) entered into after commencement of the Bill; and
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landlords will continue to be prevented from recovering Land Tax from tenants under any lease:
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entered into before commencement of the Bill (“pre-existing lease”), even if it contains a provision allowing recovery;
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arising from any renewal under an option to renew of a pre-existing lease even if the renewal occurs after the commencement of the Bill; and
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arising from any assignment or transfer of a pre-existing lease even if the assignment or transfer occurs after the commencement of the Bill.
Timing
The Bill is currently open for public comment with the consultation period expiring on 6 February 2009. Upon completion of the consultation, the Bill will either be returned to the parliamentary draftsperson for amendment or tabled before Parliament.
What Now?
If the Bill is passed, landlords should obtain proper advice as to whether they are able to recover Land Tax from tenants with appropriately drafted recovery clauses to be inserted into any applicable lease.
In the meantime, landlords should carefully consider their Land Tax liability in negotiating the rent so as to limit, as much as possible, any adverse affect the increase in Land Tax rates may have.
Tenant’s Breaches: Landlords Must Be Decisive
The recent case of Gumland Property Holding Pty Ltd v Duffy Bros Fruit Markets (Campbelltown) Pty Ltd highlights the importance for Landlords to carefully consider the actions which they take when a tenant is in breach of their lease.
Waiver by Election
The case confirmed the principle known as “waiver by election”. Generally stated, the principal provides that if a landlord is entitled to terminate a lease due to a breach on the part of the tenant but the landlord subsequently makes a demand for rent or accepts payment of rent that falls due after the breach, the landlord will lose the right to terminate the lease for the initial breach.
There are however some important qualifications to the principle which include the following:
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the landlord does not lose the right of termination unless the rent demanded or accepted is for a period after the breach. In other words, if a landlord demands or accepts rent after the right of termination arises but the demand or acceptance relates to rent payable prior to the breach, the Landlords right of termination is maintained;
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an appropriately prepared statement of outstanding rent, whenever issued by the landlord to the tenant, may not be considered to be a demand and will not result in a waiver; andif a landlord does make a demand or accept rent after the right of termination arises, the landlord must have full and actual knowledge of the breach giving rise to the right and not mere constructive notice or suspicion. Otherwise, there is no waiver.
What Should Landlords Do?
Landlords should be wary when using automated processes for demanding and accepting rent, particularly when dealing with problem tenants. The widespread use of those processes may lead to an unintended waiver with the Landlords right to terminate lost or delayed for a period of time (that is, until and unless another breach occurs). Landlords should obtain proper advice to ensure that any demands they issue and any post breach conduct does not result in any unintended consequences.
