End Lease Forfeiture during Covid19

Discussion in 'Legal Issues' started by Francesco, 1st Jun, 2020.

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  1. Francesco

    Francesco Well-Known Member

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    I have a hotel tenant having reduced accommodation during shutdowns in Victoria. The hotel gets a commission based on the fixed lease it pays to me. During good times in the last two decades it has expanded its holding in the hotel. In the confusion of the shutdowns, it has offered 50% reduction in lease and requests for waiver of the shortfall. I have offered deferral instead.

    The lease stipulates that the lease can be ended upon a notice of any rental arrears. The fixed period lease can then be ended and a monthly tenancy commences. I would prefer this outcome as the property can be sold for owner occupier at a much higher price than as an investment property. The fixed lease still has a number of years to go.

    I am considering requesting for more consensus among owners about our options as the arrears are mounting up large if it were to stretch to September. I doubt that the hotel tenant is committed to making up for the shortfall for all owners.

    Is there a sure fire way of moving the tenants to monthly tenancy that is supported by established law? The hotel tenant is known as a serial litigious participant!
     
  2. thatbum

    thatbum Well-Known Member

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    Isn't this a question for a lawyer with the lease contract in front of them and the full version of the story from you?
     
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  3. Francesco

    Francesco Well-Known Member

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    Just sounding out to see what resource is available. I would like find out who has similar experience and what can be achieved. I am not sure any lawyer can be relied on to provide me the correct advice.
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    You may need one of the class action lawyers because you're after termination of the contract and damages will not be sought.
     
  5. thatbum

    thatbum Well-Known Member

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    I can't see how anyone except a properly instructed lawyer could give you a reliable answer. I can already see multiple complex legal issues even on the short version you've described - who knows what other things are in play in the longer real life version.

    Even if such a legal resource existed, I would have little confidence you would be able to apply it correctly to your own situation.
     
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  6. Francesco

    Francesco Well-Known Member

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    I would have thought that there would be many investors with the sort of problem I am having and their experience would be instructive. Perhaps they may have similar questions and understanding of the context. Other professionals like yourself could have introduced themselves. It is a preliminary sounding out of resources so that I can gather my thoughts on the context and approach a professional with some coherence.

    I will contact you later when I am more prepared. Thank you for your advice in the meantime.
     
  7. thatbum

    thatbum Well-Known Member

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    From what I can tell so far, any similar scenarios would be much more likely to be misleading than useful. You don't seem to appreciate how legally complex it could be.

    You're talking about wanting to terminate a commercial tenancy and then force the lessees to accept a periodic lease. And said that they are likely to be litigious. That could be complex at the best of times, let alone with the covid laws and regulations on top the usual legal issues.

    Personally I think its like the legal equivalent of DIY cancer treatment and then asking for stories of people who survived and what they did - madness.
     
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  8. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    No advice will cost more than bad advice which costs more than good advice.
    I dont see how a tenant who isnt going to pay is vexatious as a litigant. It is you who may enforce on them not the other way.
     
  9. NHG

    NHG Well-Known Member

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    @Francesco, how did this go?

    Navigating Covid-19 has been tricky. I can't imagine any hotel business can survive with deferred rents during lock-downs in Melbourne.

    I know my profits are down 70%, even with rents reduced up to 50% on some properties.

    Even if you successfully evict this tenant, who will then take on the risk in a commercial deal?

    Curious to know how it's been handled. Have been quite fortunate in the negotiations I've had to date.
     
  10. Francesco

    Francesco Well-Known Member

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    Tenants are of various types. This is a special tenant cum business operator bundled in a rent guaranteed apartment. It is a surreal situation that a rent guaranteed development is now calling on the owner cum consumer investor to bankroll its survival with the imprimatur of state Covid legislation. This tenant is paid a percentage operating fee by the owner based on occupancy volume.

    How is the tenant still surviving in this situation? Very well with the guaranteed rent lease set aside and a very bipartisan VSBC/VCAT setup under the Covid legislation. The tenant just unilaterally paid nil to all owners and keep what it collects for its survival. The owners will still have to pay the costs of rates, mortgage, utilities and body corporate levies. The tenant is banking on most small dad and mum owners will not pursue them in VCAT to recover any deferred rent.

    The states have bought into the story that commercial tenants are suffering and this tenant is riding this fad to its fullest by exploiting all the openings it has in the Covid legislations. Owners have to take the non payment issue to the VSBC to vent their grievances. Owners have to take the non payment of deferred payments to the VCAT to recover any rent.

    The tenant often attended VSBC hearings with 2 solicitors and financial officers while the owners often have to represent themselves. The tenant just refused all reliefs offered in addition to the unilateral withholdings already expropriated.

    You may say that the tenant is not vexatious. (I did not raise the issue of vexations previously.) The owners certainly are vexed with the situation, but what justice is available to get out of this surreal situation of a non paying tenant who is allowed to keep its turnover?

    The amended Covid Regs of Victoria emphasised that relief must be restricted to the premises only. The tenant qualifies for Covid Regs relief under Jobkeeper stipulation on overall turnover, but also potentially qualifies for 100% relief from some owners by keeping their apartments to be unoccupied.

    Owners are locked viciously into a loss situation by State Covid Regs in the mistaken belief they are keeping a champion of the economy and employment. The fact is the principals of the developer and managing operator collected premium prices on the guaranteed rent investment and live well in their private houses while small dad and mum operators are exploited.

    If the tenant graciously and ethically get out of the business, the management of the apartments can be taken back by owners and leased out through real estate agents. Many owners would welcome that as the tenant has multiple issues with owners from harvesting proxies, imbalance in fiscal accountability and liability, misused body corporate funds to conflict of interests in servicing the apartments.