(NSW) Mandatory Code of Conduct for Commercial Leasing - forced to reduce rent?

Discussion in 'Commercial Property' started by thesuperman, 16th Apr, 2020.

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  1. thesuperman

    thesuperman Well-Known Member

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    If a childcare centre tenant asks a commercial landlord for a 50% discount in rent, does the landlord need to negotiate or reduce the rent at all or they can just say "no"? Firstly, I don't think the tenant is struggling, as only a month ago they emailed us asking if we would sell the freehold as they have some improvements they would like to make but it's not worth their investment unless they owned the freehold. If borrowing from the bank I'd say they'd need a 40% deposit plus whatever they need to "make some improvements". I'd estimate this to be around $500k cash.

    Say they claim there are big changes in the childcare industry so their income have been cut by more than 50%. Say they claim the government will only pay 50% of their total income previously earned, and now they can't charge parents an out of pocket expense.

    I would say childcare centres are one of the businesses not financially affected by Covid-19. The government said it will provide free child care to around one million families. Also:
    (a) The Government will pay 50% of the child care sector’s fee revenue (presumably, this would
    be paid to each eligible child care and early learning centre) up to the existing hourly rate cap.
    (b) The additional funding will only be available as long as centres remain open and do not charge
    families for care.

    I'm thinking about getting the agent to go back to them and say we are not in a position to reduce the rent as we have a lot of financial commitments and the tenant has enough funds to survive based on:
    (a) 50% childcare subsidy
    (b) JobKeeper Payments of $1,500 per fortnight
    (c) possibly other government subsidies
    (d) their email request to purchase the property one month ago, which clearly shows they have a few hundred grand in cash.

    What do you all think about this? Any suggestions greatly appreciated. Thank you
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    Their offer one month ago would have been based on a typical year and being profitable with full/high occupancy. Things changed, virtually overnight. An offer made today would look totally different.

    Their arrears or terminations have gone through the roof and was not foreseeable.

    You are required to enter into negotiation with the tenant, a 'no' will not suffice.

    Land tax concessions to owners have been granted as a minimum.

    Personally, I would suggest negotiation of less than 50% reduction for the next few months (fy 2019/20) & review in July.
     
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  3. thesuperman

    thesuperman Well-Known Member

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    One month ago they would've had enough of a deposit (probably 40%) to purchase plus funds to make improvements. I would suspect they would still have similar amounts of cash. Based on having access to that type of cash, wouldn't that make them ineligible to claim "financial stress or hardship"? Based on the 1st page Code of Conduct: "This Code applies to all tenancies that are suffering financial stress or hardship as a result of the COVID-19 pandemic"

    Does anyone have recommendations on what type of proof to ask a tenant for their claims of revenue dropping and that they are in financial stress or hardship? I'm sure landlords would want as much financial proof as possible that the business and them personally are in fact suffering. Company & personal tax returns of both spouses, company & personal bank statements of both spouses, etc.?

    I also read something about "tenants should consider their business interruption insurance policy" for Covid19 claims but not sure if this is something to ask the tenant about speaking with their insurer.
     
  4. thesuperman

    thesuperman Well-Known Member

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    Also, is there any rush to get back to the tenant, or best to wait to see if the tenant's JobKeeper application is approved or rejected?
     
  5. Omnidragon

    Omnidragon Well-Known Member

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    In my opinion, basically the government has hung the whole commercial rental market out to dry. Some industries (potentially your tenant) like pharmacies are outright rorting the system.

    Now it's just an issue of, do you have enough strength (ie money) to refuse to negotiate (when tenants make unreasonable demand and refuse to pay) and wait 6 months before you lock them out (assuming laws don't change). Because if you don't, you're screwed, and you'll take whatever you can to make interest repayments.

    The landlords who are strong will come out stronger. The landlords who are weak will basically get wiped these 6 months.