It must be the silly season, a full moon or I am just lucky.

Discussion in 'Commercial Property' started by Scott No Mates, 18th Jun, 2015.

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  1. Scott No Mates

    Scott No Mates Well-Known Member

    18th Jun, 2015
    Sydney or NSW or Australia
    Recently, I have had 2 clients handle similar situations totally differently with remarkedly different results. not quite unexpected.

    Client 1, a retailer, had been having trading issues for several months. After improving the product mix, signage, changing staffing levels, service experience etc they were still struggling. Extremely aware of their trading figures the business had sought rent relief several times, entered into negotiations with centre management, come to various agreements with the centre manager but due to their own ineptitude never complied with their new obligations once the negotiations had concluded.

    Letters from the centre management didn't get opened, phone calls avoided etc until finally the centre manager visited the tenant at home in order to discuss the matter of the unopened letters (it just happened to be a letter of demand and 24 hour notice of lockout). At the end of the day, the retailer been locked out & had to make good to the site as well as having the threat of bankrupcy and a long line of debt to clear if the the SCM go after for the liabilities under the lease.

    Client 2, a residential tenant, advised within days of one of his major trading partners having financial difficulties which may impact on his ability to pay rent. A few days later he advised that the trading partner had been put into administration & was being wound up. Although there was little risk of the business losing its trading capital which was held in trust by its trading partner, it soon became apparent that it would become several months before their funds would be released, regardless of being secured creditors.

    As part of their proactivity towards resolving the impasse, they now sit on the creditors panel of the administrators so they are kept up to date with all developments from the liquidator, restructured the company to align itself with several new trading partners (hence reducing its exposure to a single entity) and is seeking new short-term funding arrrangements. Although, technically in arrears, there is the ability for the lessor to claim upon the bond as well as to terminate the lease.

    In order to protect the lessor's position, a breach notice was served as well as lodging a claim with a tenancy tribunal (in order to secure a hearing prior to the holiday shutdown) and to be able to achieve vacant possession and place the property back on the market at a time when demand for this type of property would be at its peak. In determining the tenant's position, we calculated that the lessor would be exposed to about 6-8 weeks worth of risk before the tenant's new cashflow strategies would come on stream, whether the lessor was in a position to accept that risk was subject to several parties agreeing. The current state of play is that the tenant has secured sufficient short-term funding to ensure that they don't lose the premises, other cashflow strategies are in place and it shoud be business as usual, albeit at a slower pace until the new trading partners have come on board.

    Two different approaches with two very different outcomes - the first was too laissez faire believing that centre management would not enforce their rights despite continued breaches and failures to abide by agreements which would have released the company from many of their obligations under the lease (and allow them to walk away). The latter, was proactive, took the fight to the lessor and took control of the situation and have had the action to terminate the lease withdrawn.

    Moral of the story, communicate with the lessor, ensure that your position is viable and that you have an exit strategy. Don't start something that you aren't prepared to finish as this will cause more grief at the end of the day.
    Last edited by a moderator: 15th Jul, 2015
    Elives, Dwib, willair and 3 others like this.