We are facing such an unprecedented period for commercial property as everyone works through the Coronavirus.
Landlords and Tenants need to collaborate to mitigate potential hardship and facilitate a balanced outcome for both. A tenant cannot tell a Landlord it won’t pay rent.
Everyone acknowledges many businesses are facing financial stress. The same applies for Landlords, most of whom rely on rent as their sole income source to pay mortgages etc.
It is crucial Landlords and Tenants both need to participate in empathetic dialogue, with a collaborative approach if a fair outcome around “relief” is to be achieved.
What does it mean for Tenants?
The Morrison Government has put in place a suite of measures to assist businesses, sole traders and tenants. Every business is incumbent to undertake a thorough review of its financial position which may include the following:
Have you had an honest, hard look at both your personal and business positions? Have you identified spending that perhaps is unnecessary and can be deferred? Have you properly reviewed your debtors? Have you spoken with accountant or financial advisor to fully understand the suite of Government subsidies to establish what might be available to you?
Following your comprehensive review of your affairs, that’s when you should then approach the managing agent of the Landlord (in writing) with a proposal that is both equitable and sustainable.
Just this week the Government introduced the JobKeeper payment of $1,500 per fortnight per employee which is in addition to measures introduced around insurance policy premium deferrals, tax refunds, and interest free loans for business, grants and tax refunds.
Banks and financial institutions have also announced significant mortgage relief and they have introduced an array of additional funding packages designed to help businesses get through these tumultuous times.
If a Landlord offers a tenant a relief package and the tenant refuses it, the tenant needs to understand its obligations and responsibilities remain in full as per the Lease agreement.
Evictions
Tenants need to tread very carefully when contemplating relying on the Government’s six-month moratorium on evictions. Yes the moratorium means a tenants can’t be evicted during the 6 month period but is does not eliminate the tenant’s obligations to pay rent, outgoings and other responsibilities under its lease.
What does it mean for Landlords?
It is becoming increasingly common now that most banks will provide Landlords with a 6 month freeze on mortgage loan repayments. However if you negotiate a freeze on repayments, interest will continue to accrue over the 6 month freeze period and added to the total cost of the loan.
Similar to tenants, landlords need to undertake an honest assessment of their costs and critically landlords must acknowledge they have a vital role to play in supporting their Tenants by sharing the burden. This may involve less rent over the short term but the aim here is to ride this out so at the ‘other end’ they have a sustainable tenant with a sustainable business who can maintain occupancy.
A vacant property is the last thing a landlord should be left with. Already serious issues around insurance cover for vacant properties are arising.
It is extremely complicated and made more complex because money is involved, and simultaneously tenants and landlords have had their worlds literally tossed upside down. Every circumstance needs to be assessed on its own merit and there isn’t a ‘one size fits all’ solution.
I encourage landlords and tenants, managing agents, everyone within the process to respect the positions of everyone so a collaborative, acceptable outcome came be reached which ensures everyone gets through this.
Regards
Regards
David O’Callaghan
Director
O’Callaghan Commercial Pty Ltd
