COVID-19 – Where to for Landlords and Tenants
Published on March 31, 2020 by Selwyn Black and Evatt Styles
Under the Emergency Measures Act passed by the NSW Parliament on 25 March 2020, the NSW Government can pass regulations to restrict the exercise of enforcement rights by landlords (for residential, retail, and it seems commercial properties).
On 29 March 2020 the Prime Minister announced that:
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 commitments due to the impact of coronavirus.
Commercial tenants, landlords and financial institutions are encouraged to sit down together to find a way through to ensure that businesses can survive and be there on the other side. As part of this, National Cabinet agreed to a common set of principles, endorsed by Treasurers, to underpin and govern intervention to aid commercial tenancies as follows:
- a short term, temporary moratorium on eviction for non-payment of rent to be applied across commercial tenancies impacted by severe rental distress due to coronavirus;
- tenants and landlords are encouraged to agree on rent relief or temporary amendments to the lease;
- the reduction or waiver of rental payment for a defined period for impacted tenants;
- the ability for tenants to terminate leases and/or seek mediation or conciliation on the grounds of financial distress;
- commercial property owners should ensure that any benefits received in respect of their properties should also benefit their tenants in proportion to the economic impact caused by coronavirus;
- landlords and tenants not significantly affected by coronavirus are expected to honour their lease and rental agreements; and
- cost-sharing or deferral of losses between landlords and tenants, with Commonwealth, state and territory governments, local government and financial institutions to consider mechanisms to provide assistance.
The Prime Minister spoke of landlords and tenants negotiating an outcome, and suggested that failure to act co-operatively may lead to loss of tax and other concessions.
It’s not easy to negotiate when the new rules have not been spelt out. However the following considerations are relevant:
- Financier Involvement – the Banks are being pressured to help landlords ensure tenants survive- talk to your bank before doing any deal – you may need their consent.
- Government Assistance– said to be contingent on acting fairly as a landlord (is that only a threat?)
- Insurance– do you already have loss of rent or other insurance cover that could be lost by any concession?
- Extent of Impact– the statement suggests landlords may only be restricted in enforcing rights “for business impacted by severe rental distress due to coronavirus”. So what is the test for severe and is the tenant in that category? For wage support purposes the test may be a 30% reduction in revenue –it could be the same for leases. And how do you work out if the reduction is due to the Virus?
- Compliance– is the Landlord now prevented by regulation from allowing the tenant the access / hours etc. that were reasonably expected- if so the Tenant may be entitled to relief.
- Viability– Is the Tenant’s business likely to be viable when the peak of the crisis passes- e.g. better a chemist than a travel agency
- Concessions – Is the Tenant’s business one likely to get concessions and assistance- if so do they have a future during and beyond that
- Potential– what is the length of the leasing term? What can the premises be used for? Can it be sublet? What is the changing demographic of the area of the premises and neighbor businesses and premises?
- Cost– What is required to make good the premises? How long will it take to find a new tenant? What other options do I have? Is the tenant’s business one that will prosper after COVID-19 has finalized or are there opportunities that lie elsewhere for it to pursue?
- Security– What additional security may I ask the tenant to provide that gives my business great security? What is the status quo -is there a personal guarantee? Is there an opportunity to obtain a secured interest by way of a PPSR (security interest)? Does the Tenant have the capacity to provide additional securities as a result of their lending facilities and terms?
- Releases– is the tenant willing to release any other claims – i.e. make the deal one off not a first bite.
- Rent Reviews – there are ways concessions can be provided that minimize impact on market rent reviews.
- Dispute Resolution– In the current climate, litigating to resolve a dispute may be a waste of precious resources and time, given the delays in court processes caused by health prohibitions. There are other options to resolve disputes, such as mediation which can be conducted (online or by skype/ zoom), arbitration or through parties negotiating directly to resolve disputes and get more certainty during uncertain times.
What can I do now?
- Take stock look at both the short run and long run, including the issues mentioned above, and get advice
- For Landlords, the businesses that you see fighting and adapting with the support of the community are the ones that you too may want to support.
- For Tenants, consider whether you are a victim of unfortunate events and prepared to hibernate / trade or work with the Landlord, or want to take this time to prepare for other options.
Carroll & O’Dea Lawyers has traded through the Spanish flu, the depression and two world wars. We know that with practical advice there is usually a way through a challenge like this.
Selwyn Black Partner email@example.com ph. (02) 82267139
Evatt Styles Senior Associate firstname.lastname@example.org ph. (02) 9291 7113