COVID-19: Update for Landlords and Tenants

Important update and factors to consider for tenants and landlords renegotiating lease payments and terms due to the COVID-19 (Coronavirus). More updates to come as new laws are proposed this week. 30 March 2020

Current Position as at Monday 30 March 2020

The Prime Minister, Scott Morrison, has on Sunday 29 March 2020, asked commercial and retail landlords and tenants to talk to each other, so that tenant businesses will still be able to run their business when the COVID-19 (coronavirus) crisis is over.

As at 30 March, this is difficult to negotiate. We are, as the PM puts it, in “unchartered waters”.

The recent changes flagged over the weekend provide no real clarity on the what new laws will come into effect for Leases across Australia. The only thing that is clear at this stage is that there will likely be a six-month moratorium on being able to evict a tenant, although this is not yet law.

The law is changing in these uncertain times and we should expect more this week.

As at today, the issue perhaps for landlords is – what concessions should be made to the tenant? This is hard to deal with the full benefits that will be available for landlords are not yet made clear.

As at today, the issue perhaps for tenants is – how can a rent arrangement be agreed to at this stage? Should you ask for rent abatement (a temporary reduction) or just rent deferral? It is difficult to understand how any real commitment can right now be made when the concessions that are apparently being announced later this week are not known, equally, your business may not ye be fully hibernated or at all. Sales may be dropping, and you may not be sure just what your ability to pay may be.

The sensible thing at this stage is for parties to start talking, even if you can’t agree to what you will do with the rent come 1 April.

If you are a tenant, if you still open for business, monitor your sales this week and be open in your conversation with your landlord.

Will I still have to pay rent?

As of today, the answer is yes. The clear indication that the Prime Minister gave last night, was that landlords, tenants and banks have to work this out together. This is favourable for no one to be in such discussions.

It is important to remember that given the sudden change that we do not know what to expect or when to expect business to return to normal and these discussions may go on for some time yet.

With most retail tenants now having closed businesses due to low foot traffic and health concerns we expect this will further impact commercial tenants and the broader business community quite substantially.

How do I negotiate a deal?

Each business is different, and each landlord relationship is unique and will be influenced by their commitments and expenses. Having a sensible discussion about what you can do is a good starting point.

If you have closed your business, then asking for a pause may be a good idea at this time. If you are still trading it may be quite a different story and harder to calculate what a suitable deduction may be as we are still in early days.

Either way starting the conversation is important, avoiding the discussion will not help anyone in the long run.

Short term agreements would possibly be more sensible as things may change over the next few weeks with the amount of cases dropping. Remember, as we have said above, your sales this week may not be your sales next week.

Get it in writing

At any stage any negotiated outcome should be put in writing and agreed upon. We cannot stress how important this step is to tenants under leases. If you do not have this in writing you will not be able to legally fall back onto a “verbal agreement”.

Properly drafted agreements ensure that the terms are clearly and unambiguous. They prevent future disputes from arising and we see this as a key area where future disputes will arise if not handled correctly.

It is critical, to ensure certainty, that agreed variations to your lease (even if temporary) are in writing and carefully drafted.

A lawyer will make sure the amendments are drafted correctly and ensure that they remain flexible if a renegotiation of terms needs to happen should conditions not improve.

What is happening with Outgoings?

Currently some state Governments have outlined that Land Tax relief will allow land tax to be deferred. In Victoria this only applies to owners with the total taxable landholdings below $1 million.

This measure seeks to only push out the payment of the land tax until after 31 December 2020. It may only help with short term cashflow.

Liquor licensing Fees are waived by the Victorian Government and those that have paid the fee will be reimbursed.

Councils have amended their hardship policies and offered to waive and defer rates (depending on eligibility). It is important that you check your local council’s website page to see what assistance they are providing and what may work for you.

Deferring Payments

The current COVID-19 crisis has pushed the world into a period of uncertainty and how long this period may last for and what the impacts are remain unknown. It is important that when considering deferring payments that you are also considering what your business may be doing six to twelve months down the road.

Not every business is in serious financial trouble. However, if you are, you might also consider other options such as restructuring and possibly voluntary administration. If your business was not trading well before the crisis it may not be able to survive without more drastic action being taken.

Whilst some insolvency laws have altered this may not mean that your business will survive. If you would like to discuss your options, seek advice.

Please note: the above article is not legal advice. Every circumstance is different. It is critical that you obtain legal advice in relation to your personal circumstances before taking any action.

We Can Assist

The PCL Lawyers property lawyers and insolvency are experienced in dealing with crisis situations. We have the experience and the team to provide you with timely advice. Contact us today to confidentially discuss your situation on 1300 907 335.