COVID-19 And Leasing

Commercial Real Estate and Projects

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DATE PUBLISHED: March 31, 2020

WHAT YOUR CLIENTS NEED TO KNOW AND HOW WE CAN HELP

If you act for a client who is a commercial landlord or tenant, they will no doubt be developing a plan to navigate through the impacts of COVID-19 to ensure they can survive and quickly recover from this crisis. As part of this plan, your clients need to consider their legal rights and obligations and how these will be affected by the financial impact of coronavirus and the measures announced by the Prime Minister this week. This update:

  • Summarises the key measure introduced by National Cabinet which will affect your landlord and tenant clients - the moratorium on evictions for non-payment of rent; and
  • Sets out the commercial options your clients will inevitably need to consider on the issue of rental payments, and the legal steps they need to take to safeguard their interests.


MORATORIUM ON EVICTIONS

On 29 March 2020, National Cabinet agreed to a moratorium on evictions over the next six months for commercial and residential tenancies in financial distress who are unable to meet their rental commitments due to the impact of coronavirus. These measures will be implemented shortly and will significantly impact the rights of landlords and the way they negotiate and cooperate with tenants. We will keep you up to date with any progress in relation to this measure.

The Australian Banking Association (ABA) has also implemented a new measure so that the major banks will act as a backstop for landlords providing rent relief to tenants. Landlords with total business loan facilities of up to $10 million will now be able to defer repayments for six months. For commercial property landlords, they will need to provide an undertaking to the bank that for the period of the interest capitalisation, they will not terminate leases or evict current tenants for rent arrears as a result of COVID-19.


OPTIONS FOR LANDLORDS AND TENANTS

As a result of the above measures, landlords and tenants will need to work together to commercially negotiate and agree on the issue of rent payments to avoid businesses failing permanently. These options could include:

  • The reduction or waiver of rental payments for a defined period for impacted tenants. The parties could also agree to add the value of the reduced/waived payments back onto the rent once the Tenant’s business is in a better financial position;
  • In retail leases, landlords could convert the base rent payable to turnover-only until the government measures are lifted; and
  • Landlords could reduce the amount of building operations costs where possible, for example, if certain businesses have relocated their workforce to work from home and some building services are therefore no longer required.


DOCUMENTATION

If your clients agree on any proposals which result in variation to their lease agreements, it is crucial that these variations are documented. This can be achieved by way of simple Deed of Variation. This not only ensures that the Landlord and Tenant are on the same page, but it may also be important to have these agreements in writing when applying for any concessions or relief packages from the government or financiers. 

We are here to help if your clients need assistance negotiating with a landlord/tenant, advice in relation to their options or to document an agreed change to their lease agreements.

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