Corporate & Commercial 24 March 2020

Leasing update – addressing concerns raised by tenants during the COVID-19 crisis

The federal government has implemented unprecedented restrictions in an effort to reduce the transmission of COVID-19.  As a result, many business owners will understandably find the coming months particularly challenging as they navigate these uncharted economic territories.

For those business owners that have concerns regarding their ability to continue to pay rent, we have prepared the below summary of measures that we recommend tenants explore in order to protect their interests moving forward.

1. Consider your legal position

Some lease agreements may provide for an ability to suspend or reduce the rent payable in certain circumstances.  Not every lease agreement is the same, so it is important that tenants carefully consider the terms of their particular lease.  If you have any doubts or wish to seek further clarity, we recommend that you obtain specialised advice regarding your individual situation.

Beyond the terms and conditions of your lease agreement, the common law doctrine of frustration will also be a relevant consideration when considering the enforceability of leases more generally in these circumstances.  In summary, an agreement will be “frustrated” if, by no fault of either party, a supervening event occurs that prevents its performance without drastically changing the nature of the agreement. For further information regarding the doctrine of frustration and the impact COVID-19 will have on the performance of contracts (including leases), please click here.

Whether or not your lease has been frustrated at common law will be a matter for consideration on a case-by-case basis and ultimately subject to further consideration by the courts.  However, if you have been required to close your business as a result of the COVID-19 crisis we urge you to seek legal advice immediately.

2. Contact your landlord or managing agent as soon as possible

More generally, we suggest that tenants engage at an early stage with their landlord or managing agent in the event they are having difficulties in meeting their obligations under the lease.  It is important to note that landlords will be under no obligation to consider or accept any request for rent relief (unless your lease contemplates this arrangement, as discussed above).  The Victorian Small Business Commission has published some useful information on its website to offer further assistance to tenants considering this approach.

3. Access the federal government economic assistance packages

Over the past few days the federal government has announced a number of unparalleled economic responses that will support small businesses throughout the current crisis.  These include cash flow assistance packages, regulatory protections to reduce exposure to enforcement actions and investment incentives to encourage economic growth.

Tenants should closely monitor this space to ensure that they are aware of the procedural requirements that will allow them to access the various relief packages.

4. Contact your insurance provider

We urge parties to contact their insurance broker or insurance provider to obtain advice about their individual policy and the degree of coverage that is provided (especially in circumstances such as the current pandemic).  In particular, parties should enquire about the policy’s business interruption insurance coverage (if any).

If you require any assistance with negotiating changes to your rental or lease arrangements, liaising with your insurer or advice in relation to your lease, please do not hesitate to contact us.

The very nature of the current crisis means that our recommendations will be changing daily (if not hourly).  The above recommendations are made as of 9am, Tuesday 24 March 2020.  We understand the national cabinet will conduct further meetings early this week to discuss tenancy legislation.  We will provide you with an update on any relevant developments as soon as they are available.

Finally, if you would like to know what you can do to protect your business in the coming weeks and months, please click here.

For some insights on the impact of COVID-19 related work absences on workplaces, please click here.

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