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Negotiating with Landlords inTurbulent Times22 March 2012
Introduction Factors that are causing difficulty for retailers include: • the emergence of on-line retailing • the convenience of purchasing goods on-line • the relatively high Australian dollar • the slump in the property market • rising job losses • concerns about the world economy • banks now increasing interest rates • new government taxes
Introduction (continued)Options for retailer: • Seek reduction in rent; • Seek to assign the lease or sub-let the premises • Surrender the lease • Commence action against the landlord • Vacate the premises • Cease paying rent
1. Seeking a Reduction in Rent, orother ConcessionTenant should consider the following: • Give the landlord evidence of the reduction in sales • The tenant should provide the landlord with a plan • Effect on the value of the premises from a yield perspective • Landlord will seek to be released from any claim
2. Assignment or Sub-LettingTenant may consider assigning the lease to another tenant or sub-letting part or all of the premises • Very prescriptive use • Difficulty with assigning the lease is finding a suitable assignee • Sub-let a portion or all of the premises, if permitted under the terms of the lease
3. Surrender LeaseLandlord usually requires at least the following: • The tenant must continue to pay all rent and other amounts owing under the lease • The landlord agrees to seek a replacement tenant • The tenant must bear all costs incurred in finding a replacement tenant, including agent’s fees • The tenant may be required to fund part of an incentive payable to the replacement tenant Alternatively, landlords will simply request that the tenant pay a sum of money as consideration for the surrender of the lease
4. Action Against the Landlord• In Victoria, if there is a dispute between a landlord and a tenant, the dispute is required to be mediated between the parties• VCAT is a no cost jurisdiction• The cost of a VCAT proceeding can be very expensive• There is some variability in the competence of members at VCAT• Rare that either party can be certain of the outcome• Proceeding at VCAT will take many months before it is heard
5. Vacating PremisesThe tenant should consider the following: • Did the tenant pay a security deposit • Is the lease in the name of the individual tenant or if a company, has the tenant provided a personal guarantee • The tenant’s reputation • Does the tenant have other retail premises leased by the tenant?
5. Vacating Premises (continued) If the tenant vacates premises before the end of the lease, the tenant should be aware that the landlord will be entitled to either: • Accept the tenant’s repudiation of the lease and terminate the lease; or • Affirm the lease and seek to recover from the tenant all rent, outgoings and other amounts as and when such amounts fall due under the lease
6. Cease Paying RentIssues a tenant needs to consider: • The lease can be terminated and there is no guarantee that the tenant will not be able to get back into possession of the premises • A landlord can initiate proceedings against the tenant and its guarantors for its losses • A landlord could issue a winding up notice against the tenant • Reputation of the tenant will suffer
6. Cease Paying Rent (continued) • A landlord can usually charge the tenant interest at the default rate • If the tenant has persistently defaulted in the payment of rent, this may mean that the tenant is not entitled to exercise its option for the further term under the lease • If the tenant is refusing to pay the rent, it is likely that a landlord will be willing to negotiate with a tenant in those circumstances
QuestionsFurther informationRohan Ingleton | PartnerT: +61 3 9205 2012E: firstname.lastname@example.org Insert FileSite number or delete text box