Q&A with Phill Harrison, Head of Asset Management, Burgess Rawson Melbourne
Negotiating commercial property rent relief during the coronavirus pandemic is a challenge many landlords and tenants are currently facing.
Burgess Rawson head of asset management Phill Harrison outlines some of the key considerations to help guide both groups through their discussions.
Q: How long does a landlord have to make an offer of rent relief?
A: A landlord must offer rent relief to the tenant within 14 days of receiving the tenant’s request for rent relief, unless otherwise agreed between both parties.
For many landlords this timeframe may prove challenging, however those are the regulations in place to allow tenants and their businesses to remain viable.
Q: What factors does the landlord have to consider in relation to a reduction in a tenant’s turnover?
A: Under the new rules, landlords must take into consideration the degree to which a tenant’s turnover has been impacted by COVID-19, but only in relation to that specific property.
This departs from the requirements of the Code, which provided that the reduction in rent should be proportional to the business’ overall reduction in turnover.
If a tenant is leasing multiple commercial properties, each landlord need only consider the turnover of the specific property they own, and not the tenant’s turnover more generally.
Reductions in turnover can only be calculated from March 29 to September 29, and it is incumbent on the landlord to obtain information from the tenant regarding turnover during that period, including any forecasts.
Given much of the relevant period is yet to occur, unless turnover forecasts can be very accurate it is likely that parties will need to build in arrangements that allow for rent reductions to be based on further turnover information, once available.
Q: When can a landlord seek payment of deferred rent?
A: Landlords cannot seek payment of any deferred rent until after September 29, except where the lease term has expired.
However a tenant may begin to start paying back the deferred rent earlier of their own accord, if they are in a position to do so.
The tenant must pay the deferred rent, amortised over the greater of:
The balance of the term of the lease (including any extension offered); and
A period of not less than 24 months
Q: What if a tenant still owes money at the end of a lease?
A: The deferral of rent payments means that a tenant may be liable to make payments following the expiry of its lease.
Where this is the case, a landlord’s leverage in the event of a tenant failing to pay is significantly reduced.
This may result in landlords seeking to hold bank guarantees until the deferred rent is repaid, or otherwise seeking further or additional security from tenants.