It has become evident that the Australian Government is expecting extraordinary collaboration between Landlords and Tenants during this time, primarily in respect of rent relief. A failure to exercise such collaboration will mean legislative interference, to the extent that is possible.
The National Cabinet has communicated that it does expect rental relief to be provided under commercial leases / retail leases, where required. What we would seek to avoid is to have all Tenants, regardless of their financial position, applying to their Landlord for rental relief. It removes leverage and ultimately diminishes the rent relief available to Tenants that are experiencing financial hardship.
We have compiled the list below, which sets out key points to facilitate the conversation with your Landlord and obtain the best rent relief result.
- Know your numbers: Ensure that your communication includes details on the financial impact that COVID19 has had on your business. It is also imperative to provide your Landlord with some comfort by informing them of the steps that you are taking to improve these numbers. Outline the ways that you are adapting your business model in response to the current climate. We have seen this in a variety of ways: Retail businesses without an e-commence infrastructure have moved quickly to build one. Cafes have branched out to no-contact home delivery.
- What type of Landlord do you have? Whether your Landlord is an individual, medium-sized corporation or an institutional Landlord could ultimately impact the approach and the specific rent relief that you may receive. Institutional Landlords, for example, will likely be following internal guidance from asset managers on criteria and the specific relief that can be offered. If your Landlord is a medium sized business with a mortgage over the property, then there could be more flexibly surrounding the structure of the rent relief to ensure that both parties survive.
- Be specific:You need to be direct in the rent relief that you are seeking. If you have determined that you need an 60% rental abatement for 6 months – then say that. However, also make the caveat that this could change given that the situation is ever evolving. You also need to give ample consideration to consequential agreements that need to be made between the parties. These might include an agreement regarding a draw down on the bank guarantee; any legal costs required to document the agreement etc.
- Find your leverage: It will almost always be more economically viable for a Landlord to keep their existing Tenant rather than find a new one. Build on this and identify your specific leverage. For example, if you have a lease renewal in 12 months you might lean on the fact that a brief rent relief now would put your business in the most optimal position to renew / exercise the option.
- Identify gross sales / revenue threshold points: Transparency should be encouraged. Following on from ‘know your numbers’, identify and (in some cases) disclose to your Landlord the figures that you need to maintain to meet your obligations under the lease. In certain circumstances, it would be reasonable to link the rent abatement to a threshold gross sales figure / revenue.
This guidance is not universal. Each business and lease comes with a unique set of circumstances that need to be considered, and risks appropriately managed.
We want to be clear that parties need to be transparent, display stellar communication skills and avoid adopting words or actions that have the potential to become litigious. The Landlord / Tenant relationship is critical to both parties businesses and in these times of uncertainly you should want to protect it.
Liberty Leasing are offering our services pro-bono to Tenants that are experiencing financial hardship. You can make an online appointment here or contact us on (07) 3359 8273.