Commercial leases and coronavirus: what happens if a tenant can’t pay rent?
Businesses are facing unprecedented challenges during the COVID-19 outbreak, including the very real risk of not being able to pay rent when it falls due.
If you’re a small business operator or commercial landlord looking to understand your options, read on and please feel free to get in touch for an obligation-free chat with us at District Consulting.
SNAPSHOT:
A failure to pay rent under a commercial lease generally gives the landlord a right to terminate a lease and evict the tenant (also known as a right to “re-enter” the premises).
But, in these uncertain times it might not always be in a landlord’s interest to lose a tenant — even one that can’t pay in the short term due to coronavirus.
Government relief might be on the way, but we don’t know for sure what that will look like yet.
We suggest that tenants and landlords have an honest, without prejudice conversation to see whether a solution can be negotiated.
It may be an option to vary the lease to defer, reduce, or even waive rent for a certain period.
We’re here to help.District Consulting is offering heavily discounted fixed rates on our services to businesses impacted by coronavirus, including helping tenants and landlords renegotiate and formally vary their lease.
The problem
COVID-19 has caused unprecedented financial impacts to people all around the world.
Some of the hardest hit financially in Australia are small business owners facing massive drops in revenue and even the tough decision to close their doors — whether voluntarily or as a result of government intervention.
In these tough times, businesses are starting to face the very real risk that rent simply can’t be paid.
If you need help with your commercial lease, please get in touch with us.
We’re offering heavily discounted fees to landlords, tenants and commercial real estate agents impacted by Covid-19.
What happens if a tenant can’t pay rent?
A tenant’s obligation to pay rent is what’s known as an “essential term” of most leases. This means it is something that is so fundamental that the lease can typically be terminated if the obligation is breached.
In simple terms, this means that if a tenant fails to pay rent, the landlord can, in most cases, evict them (subject to the terms of the lease and the relevant legislation).
Help is (possibly?) on the way
The government has hinted at introducing measures to help protect businesses that are having difficulty staying afloat, including difficulty paying rent.
This includes the Prime Minister’s proposal that businesses enter a period of State-government backed “hibernation”, which might include government-backed rent reprieve.
Unfortunately, these measures aren’t in place yet, and there’s no certainty around what they will look like — or indeed whether they will include any rent reprieve at all.
This means that it is really up to tenants and landlords to work out a solution between themselves, at least for now.
Negotiating a solution
It’s not all bad news though.
We’ve already seen some positive outcomes from these difficult circumstances, with landlords and tenants having open, honest commercial conversations about a way forward. Some of these conversations have led to a variation of lease to see rent postponed, reduced or even waived for a given period.
With business conditions suffering, many landlords are realising that now might not be the time to have an empty shop or office space. Some are willing to renegotiate the terms of a lease to keep good tenants in there — even if they’re having difficulty paying rent in the short term.
Of course, what these negotiations look like depend on the circumstances, the parties, and the terms of the original lease.
It’s also critical that whatever agreement is reached is formally recorded as a variation to the lease.
If you can’t wait for a government announcement that might not come, or if your rent is already overdue, one method might be a simple Deed of Variation of Lease to defer, reduce, or waive rental payments for a period. This can be a relatively simple solution that keeps most of the terms of your lease the same while providing some short-term reprieve to a tenant struggling with the impacts of coronavirus.
We can help
At District Consulting, we’re here to help. We are offering heavily discounted rates on our services to businesses affected by COVID-19.
We understand that there is no point paying us as much as you might save on rent, so we’ll tailor our costs to work for you. We’re offering transparent, discounted pricing and payment plans to affected clients.
We’re also always happy to take a call or answer an email to discuss any queries you might have about commercial leases or town planning in these times, with no obligation.
If there’s anything we can help with, we’re here for you.
Other help for small business
Whilst rent will keep falling due (at least for now), you should also be aware of the stimulus measures already introduced by the government and the banks for small businesses. Our friends over at illumin8 have provided a really helpful summary of these measures here.
It is also advisable to contact your insurer to determine whether you are covered for any loss in revenue or other impacts as a result of COVID-19.
Again, if you need any help understanding your options, we’re always happy to help out in these difficult times. Please feel free to get in touch here or email us at hello@districtconsulting.com.au.
Disclaimer
The information presented in this article is general in nature and intended for readers in Victoria, Australia and is current at the date of publication. Covid 19 is an evolving situation. This information does not take into account your personal or business circumstances. Always seek specific, tailored professional advice to determine whether this information is appropriate for your circumstances