Getting it right with the landlord21.04.2020
Deferment or reduction
When you step back into your business to
operate, you’ll be short of cash flow, you’ll be thinking you need to have
enough to pay the staff each week and pay your suppliers as yours and other
businesses find their stride.
What you don’t need is the burden of
deferment from your landlord. Deferment is where you have agreed to have your
rent deferred put off for the short or medium future.
But in a few months’ time you’re loaded
with what you owe plus your current rent and you’ll begin to choke.
Your business choking means the struggle to
get through the next few months was pointless and also your landlord has now
lost or could lose a good tenant.
The fight in the future that would happen
between your lawyers and their lawyers to ”scramble” for the deferred money
could be a disaster after the fact that you had planned to keep your business.
What you need is a reduction in rent.
Starting with if possible a rent free period.
This is easier said than done. You are
asking your landlord to bare you pain and cost as well.
It’s now that you start talking to your
landlord about a rent reduction over a coming period, because we don’t know how
long the financial and economic effect of the virus will be. Certainly not a
few months. A few months’ rent free would be good as well.
Your landlord probably will have a mortgage
and of course he will need a finance holiday as well. There is legislation in
place though it’s a bit “wishy-washy” we advise that you open the
conversation noting the legislation and that you want to work through with your
landlord because the legislation talks about deferment and that would in
many cases mean give up now.
don’t know what will happen in the economy, we don’t know how long restrictions
will be in place, and we don’t know what other legislation may be introduced to
help the tenant from the state or the federal government so we see no point in
fixing an agreement – we live in a new time when we
don’t know what the future is so perhaps you prefer to fix an agreement now.
Anyway here is what happened
On Tuesday 7 April 2020 the National
Cabinet released a mandatory code of conduct containing “good faith leasing
principles”, which will apply to all commercial tenancies. Each state and
territory will pass their own legislation and regulations to give effect to the
There are many questions and uncertainties
surrounding the code. The code is effective from 3 April 2020 (being the date
the National Cabinet agreed to the principals of the code) and will remain
until the Commonwealth JobKeeper program ends.
we don’t know what is coming in legislation or how, long the period will be
set. It’s set to the JobKeeper legislation, the government will not have
infinite funds for this.
This Code of Conduct applies to all
commercial tenancies where the tenant is an eligible business for the purposes
of the Commonwealth JobKeeper programme. It appears that the tenant merely
needs to be eligible for the Jobkeeper payment, it is not necessary that they
actually claim it.
Determining the amount of decrease in
turnover will be critical.
The leasing principles established include
a “proportionate reduction” in the rent payable, in the form of waivers and deferrals,
in line with the reduction in turnover. The waiver component of the
proportionate reduction in rent, must be at least 50%. The balance of the
proportionate reduction in rent is to be deferred and will be payable to the
landlord over the remainder of the lease term or 24 months (whichever is
over a long period may mean that you go back to effectively a massive rent
increase. Could your business manage that, you need a better deal than this.
In addition, Landlords must not terminate
leases, or access a tenants security (such as a bank guarantee) to pay rent.
The principles relating to statutory and other outgoings, are less clear and
suggest landlords should, where appropriate, seek to waive recovery during the
period a tenant is not able to trade.
the landlord can’t throw you out. So start a conversation rather than
negotiations, perhaps the landlord will be realistic. Before the virus,
hospitality was in trouble, so was a lot of retail. Perhaps your landlord would
rather secure first you – the good tenant.
Furthermore, interest and fees are not
payable on any waived rent, and no fees, charges or punitive interest can be
charged on deferred rent. If the landlord and tenant can’t agree then they must
attend binding mediation.
await further legislation and time.