14 Apr 2020
Words
ResortBrokers
The Latest on Commercial Tenancies
Over the last few weeks, our team has been speaking with both motel operators and landlords. This has given us perspective from both sides of the fence, and it’s obvious that everybody is feeling the pain right now.
Everyone has their own set of circumstances, and our advice is to view your relationship with your landlord / lessee as a partnership and be fully transparent. What’s happening is nobody’s fault, is beyond our control, and this is the time to sit around a table face to face (so to speak) and talk things through.
Remember leases in the accommodation industry are different to other commercial leases as they enjoy a longer tenure and are very unique as the goodwill of the business has significant value and is tied to real estate.
My final point is when you do strike an agreement, make sure it is clearly documented, and signed and witnessed by both parties so there is no confusion further down the line.
Below is some detail on the government announcement on commercial tenancies:
Prime Minister Scott Morrison confirmed the code will be legislated by state and territory governments, reaffirming his desire for tenants and landlords to negotiate among themselves to achieve mutually beneficial outcomes.
The code will bring together principles of good faith leasing and proportionality and will be overseen through a binding mediation process.
To be eligible to negotiate under the code either party must:
- Be a business that is in a position of financial distress
- Has a turnover of $50 million or less
- Be eligible to receive support under the JobKeeper program (meaning the business has experienced at least a 30 per cent drop in revenue due to Covid-19 restrictions)
- Under the Code, landlords must not terminate the lease or draw on a tenant's security
- Likewise tenants must honour the lease agreement
- With regard to rent reduction, landlords will be required to reduce rent in proportion to the trading reduction suffered by the tenant. This will be achieved by a combination of waivers and deferrals of rent
- Waivers of rent must account for at least 50 per cent of the reduction in the rental provided to the tenant during that period
- Deferrals must be covered over the balance of the lease term and for no less of a period than 12 months
Lessees are being encouraged to share turnover information with landlords to enable negotiations about how big rent reductions should be, although the Federal Government has been clear this measure does not remove a tenant’s obligation to honour the terms of their lease.
