Landlords and COVID so far …
Once the pandemic hit, the Australian Government enacted a series of measures and social distancing restrictions to help the country get through with minimum infections and fatalities. However, the impact on day to life and the economy as a whole was / is devasting.
For retailers, the most severe impact was imposed by a mandatory shutdown on gyms, nail bars and massage clinics. The reality is that all retail has been severely impacted, even for those sectors that can still trade, revenues are barely a trickle – without the Government support packages such as Job Keeper, many would not break even.
We are very lucky in this country and the Government stimulus has masked over the true short term pain. Importantly the Federal Code of Conduct for Commercial Leasing, since enacted as regulations by State Governments has helped immensely. Is it perfect? No. The code and subsequent legislation provides a strong frame work for Tenants and Landlords to work within, in order to assist during the COVID pandemic and get them through to the other side of the ‘new-normal’.
There is much confusion as the regulations basically provides that a proportional amount of rent will be deducted equal to the proportional sales decline experienced during the pandemic.. Within the frame-work it asks a retailer to confirm Job Keeper enrolment to be eligible. It then says a Landlord must apply a minimum of 50% waiver to the amount being reduced with the balance to be deferred or waived, depending on ‘good-faith’ discussions between tenant and Landlord. The deferment must occur over a minimum two (2) year period (so as to not weigh down the retailer with unsustainable debt). The regulations also state that any agreements reached must NOT put the tenant at a disadvantage in honouring its obligations of the lease in the future.
It is our experience that there are varying interpretations of the legislation and how it applies and some of this stems from the variances in state legislation. Most of the self-serving interpretations come from Landlords or Agents. This is what we are seeing from major Landlords:
Sales for April by retailer zero.
Landlord we will waive 50%, please pay us 50% now or within 2 years.
Leasewise advice zero means zero therefore waive all of it
Alternatively there are cases where a café might be doing take away coffee only, therefore the scenario plays out like this:
Sales for April 20 compared to 2019 – 80%
Landlord position we will waive 40% defer 40% over 2 years, pay 20% now
Leasewise advice waive 80%, 10% deferred and 10% to be paid now
The example of dialogue unfolding in May has largely been coming from the large shopping centres. In essence the regulations provide a framework, it’s interpretive and MOST importantly it must work for the retailer otherwise there is no point. Many landlords are pressing for agreements now in May. It is very difficult to assess the true impact of COVID and make an agreement in May when the lifting of all restrictions have not occurred. The true measure cannot be ascertained in order to achieve a fair outcome.
Our greatest concern are tenants being bullied into agreements that are inequitable. Franchising and the resources of the FCA ensures that Franchisees and Franchisors alike are privy to information and sound advice so as not to agree to an imbalanced proposal.
Of significant concern are many of the private landlords and suburban agents. Some behaviour from the outset has been the most unpredictable, non-conforming and blatantly opportunistic. We have had positions put forward such as:
– Here is a 25% reduction that is all you are entitled to
– You must pay all the rent now, we will assess the impact and apply a credit after September
– You will be locked out and your lease cancelled
One of the best directives of the regulations, is that there is a moratorium on ALL Landlords not acting adversely against their tenants in terms of breaching their leases or ending them because of performance during the COVID period.
Another concern and looming near the horizon is October 2020. The regulations’ protection expire at the end of September and the ‘new normal’ will not see retail business return to the levels it was pre COVID. Vindictive landlords will use the assistance they provided during COVID as motivation to treat some tenants badly and the pressure will be on their tenants to honour the obligations of the lease or rent. This gets back to why we advise strongly to consider what deferment of rent means and how it will be addressed.
There is also the possibility to openly discuss what will happen in October and beyond now. There is no point putting a band aid on a business for six (6) months when the wound can and will open up in October and perhaps be fatal. Commercial discussions for leases occurred every day of the year pre COVID and will occur post COVID. It’s a fact of daily business life that retail was overheated and suffering for a variety of reasons pre COVID. The number of administrations up until February 2020 were at record levels. Transparency with a Landlord, preparation, good advice and contingency plans are everything in order to get through the COVID period and most importantly beyond.
Ange Kondos – LeaseWise