In this climate of uncertainty, you might be seeking guidance in relation to the effects of this crisis on any retail lease agreements on foot. There has been some news that the states and territories may amend certain provisions of the Retail Leases Act (as they are enacted in the various states and territories) and a further update on this is due within the next day or so.
Here is guidance on navigating these issues. Of course we are only a call away should you require tailored advice.
Consider alternative commercial agreements
Arriving at a commercial arrangement with an existing tenant might be more cost-effective during this crisis than looking for new tenants, which is an expensive, time-consuming and risky process in this environment. These commercial agreements may include:
• temporary rent reductions;
• temporary rent relief;
• temporary reduction of a bank guarantee to free up funds;
• the grant of a temporary rent holiday, where the value of the waived rent will be added to resumed payments over the balance of the term once business returns to its ordinary course;
• engaging key stakeholders such as the landlord’s bank to make arrangements in respect of any mortgages.
If you determine that one of the above measures is appropriate, we recommend that you document it accordingly – taking into account any provisions relating to variation of terms of the lease and any applicable requirements of the Retail Leases Act. This will mitigate the risk of disputes occurring at a later date.
Be careful with bank guarantees/security deposits – security.
It is common for tenants to provide a bank guarantee or security deposit under a lease, and the circumstances which a landlord may call on this security is defined by the terms of the lease. Calling on a bank guarantee or a security deposit will often occur where a tenant has been served with a notice of default and has failed to remedy that default within a reasonable time. However, sometimes, the lease does not require a notice of default.
A landlord should think carefully before calling on security, and first consider other avenues available to address the issues. Further, consideration will need to be given to the tenant’s financial position as calling on security or a guarantee in circumstances where a tenant is trading insolvent may cause issues for the landlord if the tenant is placed in voluntary administration or liquidation down the track.
Keeping the communication alive
Landlords with an eye to these issues and the future are probably best to reach out to their tenants and maintain communication during the COVID-19 crisis. This includes landlords making appropriate continuing enquiries to understand their tenant’s financial position as it is in their best interest to do so.
We are here to help – and are with you for the journey
It is critical that commercial leasing agents and landlords are aware of their rights and obligations to tenants. This begins with identifying the scope of them under leases agreements, and if you would like further clarity, we can offer fast and tailored advice for a fixed price.
Businesses that build a bridge to success the other side of this crisis will be the ones who recognise and address these issues proactively and soon.
Don’t hesitate to give us a call if we can help.