Since the Victorian economy has reopened last month albeit with some restrictions still in place, our office has seen a marked increase in the resolution of rent relief arrangements with tenants.
Many tenants have had rent relief arrangements in place from April to September but not all of them have requalified for Jobkeeper from October 1st for relief until December.
It has also been our experience that many tenants have submitted rent relief requests late or that their application does not comply with the renewed regulations. Therefore, our discussions with various tenants continue until a suitable resolution is found.
Whilst the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Miscellaneous Amendments Regulations 2020 are complex and untested at VCAT, there have been many circumstances and examples to consider such as the following.
Where a tenant has sought to back date a relief request prior to October 1st. Tenants cannot “go back in time” as the original regulations applied to relief applications made only between March 29th and September 29th. Therefore, the tenant can only make application for relief for the current three month period.
Where tenants have struck new lease arrangements, as opposed to an exercise of option, had the rent reduced and then sought additional relief. Generally, these agreements constitute a “new” agreement under the regulations and additional rent relief is therefore not available.
Where tenants have sought relief beyond 31/12/2020 being the current end date of commercial tenant rent relief. Whilst landlords are not obliged to extend relief beyond that period, some landlords have considered it on a case by case basis given the circumstances of the tenant. Whilst the state government has discretion to extend the current regulations to April next year, there has been no announcement.
The tenant must provide evidence of the drop in turnover compared to the same period last year. A tenant who has been in lockdown for a good portion of July to September has sought relief for October to December based on a drop in turnover of perhaps 50%. Clearly the tenant will trade better when they re-open than they did during lockdown, so a more equitable rent such as 50% for October, 65% for November and 75% of the normal rent payable for December may be more reflective of the tenant’s trade and discussions should be had on that basis.
Where tenants did not requalify for Jobkeeper or have delayed confirming their status, arrangements. Tenants have to be made to bring rental payments up to date promptly, or if necessary agree on a delayed payment plan.
Considering a reduction of outgoings as part of the relief package. Very few relief deals are struck which include relief for rent and outgoings. By far the majority are for rent alone, though each case is different.
From our experience, industrial tenants have fared better during lockdown than offices, with some retail tenants faring the worst, especially if they are located in the Melbourne CBD. For industrial properties where relief has been sought, it has not been for the full nine month period and rarely above 30% relief. Offices are often similar, but reductions can increase to 50%. For some retailers however, particularly those who have been closed and cannot offer goods or services online, up to 100% of the rent is reduced and repayment of 50% of the deferred rent is to occur by instalments from April 2021, for example over two years or the balance of the lease.
If you are unsure what the best option is for your property, please contact our expert property management team who can guide you through this process.
Commercial Property Management is what we do best.
Written by Bill DiDonna
After some 35 years as a commercial property manager, Bill has a strong knowledge of Melbourne’s suburban property market.