Mondovo

How Landlords Should Respond to COVID-19

How Landlords Should Respond to COVID-19

We understand that being a Landlord at the moment is an extremely difficult time. We all await further clarification from the Federal Government as to what incentives, if any, will be offered to Commercial Landlords to assist with concessions that may need to be made with their Tenants. Some Australian Banks have announced they will defer loan repayments on loans up to $10 million dollars for Landlords that provide certain assistance to Tenants.

There are a number of incredibly important considerations for a Landlord during this time including maintaining a relationship with Tenants, ensuring that once we emerge from this crisis that your commercial premises have sustainable tenancies and businesses that can hopefully rebound and continue to operate and add value to your properties and the ongoing consideration of ensuring you have sufficient income to meet your financial needs.

With this in mind, a number of Landlords have been receiving approaches from Tenants regarding rental waivers or assistance packages. Given that we cannot be fully aware if any assistance is going to be provided to Commercial Landlords, we see the following as the 3 main options available to our Landlords at this time:

  1. Provide a “Rental Waiver” – this is a fairly simple process of waiving rental for a specific period of the lease. We would need to be specific as to whether this includes or excludes outgoings;
  2. Provide a “Rental Reduction” – this is a process where the rental may be reduced depending on the reduced capacity of the Tenant and again should be specific as to whether it includes or excludes outgoings;
  3. Provide a “Provision of a Rent Moratorium” – this would relate to a specific period where rent is frozen. This means that the rent is not payable under the lease however it is not forgiven or waived by the Landlord. The Landlord could advise that after the Rent Moratorium period the Landlord will reassess the rental during the moratorium period which should allow a Landlord to either require repayment of that rental (say over the period of the remainder of the lease or some other period determined by the Landlord) or alternatively, the Landlord could agree to forgive or reduce that rental at that time;

This last alternative allows the Landlord to defer making a final decision in the reduction or waiver of rental until further information is to hand, including the length of this current crisis and the basis on which each individual is able to recover from the downturn.

We believe the most important element of any of these solutions is that the Landlord properly document any agreement which is reached. No agreement should be reached without proper review and documentation. The reason this remains so vital is that the greatest asset that the Landlord will have is the value of their premises and potentially the ongoing tenancies. If there is dispute at a later point regarding what agreement was reached or the specific terms of that agreement or the ability of the Landlord to later make a determination, each of these may result in substantial dispute and/or

litigation at a future point in time. This has the potential to cause more damage than the current situation if in the instance the Landlord is in a dispute with a large number of its Tenants.

We would recommend that each Tenant is dealt with on a case by case basis and bound to strict confidentiality failing which any agreement may be forfeited.

It may further be prudent that:

  1. the Landlord negotiate the terms subject to final agreement and documentation to save incurring any unnecessary costs; and
  2. the costs of documenting by the agreement are either born by the Tenant or potentially on a shared basis between the parties OMB Solicitors will assist with this documentation.

We believe this is an essential time for our Landlords and we look forward to providing you whatever assistance you need during this period.

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