Effect of Coronavirus Measures on Retail Leases
Aside from the health and safety fears and concerns about the economic impact generally of the coronavirus, landlords and tenants will also be deeply concerned about its effect on business and the effect of the measures put in place by both State and Federal Governments.
Many tenants will be worried about their ability to pay rent and other outgoings. Landlords in turn will be worried about their tenants’ ability to pay, which will in turn affect their income and their ability to meet loan payments.
Currently many tenants are negotiating arrangements with their landlord to defer some or all of their rent payments during the next few months. In many cases landlords will expect that any unpaid rent for the period will be repaid by the tenant once the crisis is over and businesses are back up and running.
It is important therefore that any agreement between landlord and tenant is very clear about those arrangements including:
• what level of deferred rent will be allowed and over what period.
• whether that deferred rent is to be repaid by the tenant in the future, and if so what are the payment terms.
• what, if any interest is payable on deferred rent.
These agreements should be clearly set out in a deed and signed by all parties.
Absent agreement between the parties, most leases are unlikely to entitle a tenant to a reduction of rent due to the current circumstances or allow a tenant to terminate the lease, whether under a force majeure clause (which is not common) or under the common law doctrine of frustration.
Affected tenants should begin putting together financial and other data showing the effect on turnover and customer numbers in order to make a case for a rent deferral. When approached by a tenant, landlords should firstly ask the tenant to provide that data so the landlord can assess whether a rent deferral is justified and if so, to what level and for what period.
It is expected that the Government will introduce new laws which will provide some protection for both residential and retail tenants. Details are expected to be issued in the next few days. If that happens, we will provide you with further information.
Author: Cathy Drake