Commercial Tenant Requests for Rent Abatement or reduction

The very knowledgeable Wendy Thomson has shared this excellent article on how Commercial Property managers are dealing with Tenant requests for rent abatement or reduction. If you’re a landlord who manages your own commercial or retail property you can use Wendy’s advice if you’re dealing with the same situation.

For most Commercial Property Managers (CPMs), dealing with the far-reaching consequences of COVID-19 is new territory with many being overwhelmed by the daily influx of tenants requesting assistance. Approaching landlords with these requests, documenting and adapting property management systems and processes to make adjustments – while simultaneously maintaining vital communications with all parties – is a huge challenge. So, how do we meet it?

Being proactive is key

A situation like this requires action rather than reaction. We anticipated that many tenants would be in difficulty and would seek rent relief, which in turn could create financial difficulties for landlords. We chose to communicate with landlords as early as possible to give them advance warning of this and urged them to seek appropriate professional advice. This enabled landlords to adopt a consistent policy in preparation for dealing with requests for rent relief. We also reassured landlords that we would work with them and keep them as up to date as is practicable in an unprecedented situation such as this.

Being proactive also means that agencies must respond to this new feature of property management by adapting existing systems and processes, or establishing new ones. In a time of confusing and often contradictory information, creating unique letter and email templates, which can be tailored to suit each situation, can help ensure clarity of communication.

We recommend the following process for dealing with tenant rent relief requests:

Insist requests be submitted in writing to the property manager;
Establish a system to specifically log and track each tenant request;
Confirm with tenant receipt of their request.

Upon receipt of a request, the agency should ask the tenant to confirm that they have consulted:

their accountant or financial adviser;
their bank or financial institution;
their insurer or insurance broker to establish if any business insurance policy covers this type of situation
their personal insurance (such as loss of income) policy to see if cover includes the current situation
relevant government departments regarding eligibility for any assistance packages or payments

Important note: Agents cannot offer financial advice or advise on a tenant’s eligibility for government assistance. The assistance available is changing daily and eligibility criteria may differ from business to business. We are not experts in these areas and should direct tenants and landlords to seek their own information.

Rent relief

Terminology can be confusing and it is possible to misinterpret what has been requested or offered. It is critical that property managers and both tenants and landlords understand the terminology being used. The form of rent relief being requested or offered should be clarified in writing. Once agreement has been reached, both parties need to be clear on exactly what relief has been agreed.

Rent relief can include any of the following:

Rent freeze, which usually refers to exemption from any increase in rent. (This is generally NOT what tenants are requesting now!);
Rent abatement, which generally applies to rent-free periods at the commencement of a lease;
Rent holiday, which means free rent as in it will not be paid at any time in the future, and also no extension of a lease term.
Free rent is the same as a rent holiday;
Deferment of rent means that full rent or a percentage thereof is not payable for a period of time, BUT will be payable in the future. This rent relief can only be offered by landlords. Terms of leases may be agreed to be extended in this type of situation.

We recommend dealing with each tenant request on a case-by-case basis because any relief will depend on the circumstances of both tenant and landlord. Landlords also have financial commitments and currently, assistance from the banks is only in the form of extensions of loan terms and adding interest to principal amounts – although this may change.

Landlords should always ask tenants to provide proof to support a request for rent relief.

It is critical that any agreements granting rent relief clearly outline the time-frame applicable and any conditions, and are agreed and confirmed by both landlord and tenant. Landlords should seek legal advice before granting a request, particularly one for deferment of rent and/or variation or extension of any lease terms.

Outgoings

Payment of outgoings and other costs outlined in the lease continue to be a tenant’s responsibility unless their landlord offers relief.

Lease obligations

Many leases stipulate that a tenant must remain open during hours of business. If a tenant is unable to conduct business and must close, or if a government directive requires closure, the tenant must notify the agent in writing and it is recommended they provide a statutory declaration to that effect – particularly now as agents must comply with government lockdown and/or social distancing requirements and may not be able to attend a property.

While a global company might request rent relief across all its businesses and locations, it is possible that a tenant is in an essential or demand industry and can continue operating without impediment. That tenant should not be entitled to claim rent relief.

Whether conducting business or not, a tenant must ensure that their leased premises are always maintained in line with the terms of the lease.

Flexibility

Landlords have commitments, tenants have signed leases that rarely offer an “out” or variation to terms, and real estate agencies have commitments and can ill-afford to absorb reductions in commissions. Landlord, tenant, CPM – we are all facing the same situation and in uncertain times like these, there is a lot at stake for all of us. Being flexible can help ease the burden on everyone.

Unfortunately, not every landlord is ethical or open to being reasonable just as some tenants may not be in genuine need. Some affected tenants will respond positively by finding other ways to do business. There are plenty of opportunities out there for those willing to be versatile or innovative in their approach to tackling the situation.

If you are finding that keeping up with all the changes is like trying to stay upright on a speeded-up treadmill, knowing that you can easily access information from reliable sources can help you centre yourself and deal with each new challenge as it arises. I recommend two Victorian-based legal practitioners:
Sam Hopper, a barrister who has been very proactive through his blogs, which you can read at:
https://samhopperbarrister.com/

Rohan Ingleton from Madgwicks. who provides email updates. You can sign up for these at:
https://www.madgwicks.com.au/people/rohan-ingleton/

Self-care is important

Managing the expectations of landlords and tenants during the pandemic is a particularly challenging and stressful time for CPMs. Yes, maintaining an openminded and level-headed approach is a priority, but so is self-care. Take lots of short breaks and enjoy the fresh air – even if it is just on your home or office balcony. Breathe! Keep your sense of humour – there are plenty of silly jokes and memes to laugh at. And if you feel that you need some expert help to find that balance, it is okay to ask.

And the lesson learned?

I think the most significant thing coming out of this event is the importance of cultivating strong relationships with landlords and tenants. Building trust over time is key to this and when something similar happens again, it will be so much easier to handle.

Wendy Thomson – WendyWho?

Wendy Thomson is the professional of choice when it comes to commercial property consultancy. Knowing the industry inside and out, Wendy lives and breathes commercial property.

Highly regarded as a leader in this specialised field, Wendy has developed an extensive and varied clientele base and is unwavering in her daily commitment to consistently deliver positive outcomes.

website: wendywho.com.au
Mobile: 0413 134 662

Other Resources

Prime Minister Scott Morrison has announced new rental waivers and deferrals for commercial tenants hit by the impact of the coronavirus crisis.

Under the scheme, which was announced after a meeting of the National Cabinet on Tuesday, landlords will have to reduce leases in proportion to the reduction in the tenant’s business.

Relief for Commercial Tenants

The Government has announced a range of measures to help renters. This includes a temporary hold on evictions and a mandatory code of conduct for commercial tenancies to support small and medium sized enterprises (SMEs) affected by coronavirus.

Variation of Lease Template

Use this agreement when the parties to a commercial lease agreement wish to alter the terms and conditions of the agreement, such as rent payments or the duration of the agreement.

Assignment of lease

An Assignment of Lease Agreement (in some states referred to as a Transfer of Lease) transfers an existing tenant’s leasehold interest to the new tenant, creating rights and obligations as between the new tenant and the landlord.

In effect, the new tenant agrees to step in and take over the existing tenant’s rights and obligations under the Lease. The new tenant becomes bound to the terms and conditions of the Lease, taking the place of the existing tenant, who is then released from it’s obligations as at the date of transfer. In this instance, a tenant who has assigned, or transferred, their leasehold interest will not be liable if the new tenant defaults.

Landlords Guide: What to do if your tenant wants to assign or sublease a Commercial property

There are a variety of circumstances that might lead your tenant to ask for an assignment of the lease or to sublet the leased premises. This article outlines the steps a Landlord of a commercial property should take if your tenant asks this question.

Solid Legal Protection Without the Expense