We are all heading into uncharted territory, as our economy faces what we anticipate will be the most significant economic event since the Second World War.
Now, like then, there will be no shortage of hardships shared, but together, we will survive.
A great number of our Landlord clients in the commercial and retail space have been fielding a very large number of requests from their Tenants for support.
For those Landlords who can provide support:
- Be aware that there are differing taxation consequences attached to different kinds of rental support options. Please obtain proper tax advice before proceeding.
- ‘Support’ does not necessarily need to be limited to rent relief (although there is a lot of that going around). An extension or reduction of trading hours, or an expansion of the Tenant’s permitted use may also make a meaningful difference to some Tenants.
- An agreement between the parties for the Landlord to claim against the Tenant’s bank guarantee or security bond may be a short-term solution to bridge the gap between the parties’ respective needs.
- Be careful not to inadvertently prejudice future market reviews.
- Don’t lock in permanent or long-term rent reductions. This current disruption will pass and we will all want to be able to pick up where we left off, when life does eventually get back to normal.
- Try to tie the support arrangement to the specific period of the Government mandated lockdown, perhaps followed by a short period afterwards for the Tenant to ramp back up to normal trading conditions.
- Whatever support is being offered, be mindful to do it in a way that doesn’t throw away the Landlord’s rights if the Tenant is ultimately forced into insolvency
We anticipate that a transition to turnover rent may be the only saving grace for some Tenants, and some retail precincts.
For any Landlord negotiating such a transition:
- Do not set the turnover rent arrangements in stone forever. Again, tie the turnover rent period to the specific period of the Government mandated lockdown.
- In drafting any variation of the Lease, be careful in how ‘turnover’ is defined. Many Tenants will be forced to change their offerings, and the mode of delivering those offerings – online sales, ‘Click and Collect’ etc may become the only source of revenue for some kinds of Tenants. Make sure your turnover provisions capture those sources of revenue.
Landlords should also be checking to make sure their securities are in place, up to date and registered on the Personal Property Securities Register. We anticipate a heightened environment for disputes over competing claims to Tenants’ fitout etc.
If you, your Landlord, or any of your Tenants require assistance in these trying times, MDL can help. We are specialist leasing lawyers with a broad expertise in all nature of commercial and retail leasing transactions.
We have a suite of quality rent relief and variation documents on hand that can be tailored for your specific circumstances and ready to service Landlords and Tenants alike on an urgent basis.
We are 100% remote ready and have the capability to continue to service you and your clients despite any Government ordered lockdown.
For your piece of mind, we can do all of this for a competitive fixed fee.
Call our Accredited Property Law Specialist Stephen Gibson on 07 3479 5217 for more information.