August 18, 2020Uncategorized
Commercial Tenants vs Landlords in COVID-19
The way we’re going to be judged after the pandemic, is how we’ve treated each other in the face of hardship, The question we really need to ask ourselves is “Are we going to be able to continue a mutually beneficial relationship and look each other in the eye when things return to the new normal?”
Nowhere is this more relevant than in recent dealings between Landlords and Commercial tenants in the wake of the nationwide lockdowns and social distancing rules imposed by government.
We recently conducted a nation-wide survey of wholesalers and distributors, predominantly to the hard-hit hospitality sector. One of the questions we asked was “what was your experience like with your landlord in the face of the lockdown laws and trading restrictions?”
We have heard some good and a lot of bad experience’s that businesses have had with landlords. However, it was clear the largest proportion of negatively impacted tenants resulted from the level and extent of the Victorian lockdowns.
With restrictions on trade and the closure of many small and medium businesses, owners thoughts quickly focussed on managing cash flow. Many of the respondents to the survey said the first items to consider were:
Employers were able to breathe a small sigh of relief when the federal government stepped in to offer a solution, with the introduction of Jobkeeper (provided your business met the eligibility requirements)
Unfortunately, there is still a lot of ambiguity around relief options that commercial tenants have to lessen the stress of having to pay rent while trading has been reduced or ceased.
In April, the national cabinet released a code of conduct for commercial leasing which offered some sort of backstop assistance to tenants fearing eviction as a consequence of the lockdown. Most state governments across the country adopted the code without making any significant changes or alterations.
So what guarantees have governments put in place?
They have guaranteed that tenant’s won’t be evicted, that tenant’s rent can’t be increased and that a landlord must negotiate a rental reduction in “good faith”, based on the drop in turnover you have experienced.
So…what happens when a landlord decides they won’t negotiate in good faith, or decides to give a tenat “dead-air” and remain unresponsive?
Out of 70 businesses interviewed, 52 said their experience in dealing with their landlords was a negative one. Alarmingly, 24 or one-third of responses said that their landlord remained elusive and would not negotiate in good faith, asked for huge amounts of financial information, or was uncontactable.
Considering the fact that landlords receive a land tax deduction in addition to bank loan payment deferrals, this behaviour is eye opening and eye watering.
One of the main issues is that the governments have not been prescriptive and left the negotiation to be conducted on a case by case. This leaves SME’s at the mercy of their ability to negotiate with a real estste agent and a landlord, who typically do this for a living.
Ordinarily the survival of a tenant would be the best thing a landlord could wish for, yet despite the financial relief offered to landlord’s, many tenants are still feeling the pressure not only from landlords, but alarmingly from agents. I smell a conflict of interest.
In Victoria, we have seen 2,3 & 4 hour wait times to speak with a Business Vic representative and the Ombudsman has decided to not answer the phone.
We now wonder who tenants can turn to, because it seems more often than not the term “good-faith” has been ignored.