How does COVID-19 affect your lease?
Marianna Idas, the Principle at eLease Lawyers has compiled this helpful information for leaseholders who have been affected by COVID-19.
There has been a lot of uncertainty surrounding leases due to the impact of COVID-19.
The Prime Minister announced on 20 March, 2020 that State and Territory Governments would be working on model rules designed to support tenants experiencing hardship due to coronavirus. The NSW State Government has just passed emergency measures regarding changes to retail and commercial leases which is likely to follow in other states. In essence, the new amendments are likely to be enacted for approximately six months and may include:
- Landlords are unable to make recovery possession of a premises from their tenants in particular circumstances;
- Landlords are unable to terminate a lease agreement in particular circumstances;
- They will regulate or prevent the enforcement of landlord rights;
- Exempting a tenant from the operation of provisions or agreements relating to a premises.
It is important to note that there is some uncertainty surrounding the legislative change but more certainty should come to light in the upcoming weeks.
To avoid this uncertainty, tenants may obtain assistance from their leasing lawyer by having them write letters to the landlord in an attempt to obtain an agreement for either termination or rental relief.
The tenant may seek the following types of rental relief:
- Rent free: A rent free period could be sought during the mandatory closure of its business.
- Rent tied to performance: A rent reduction could be tied in with turnover or customer numbers as compared with prior numbers. This may be suitable where there is reliable data. For example, if you have half the customers/sales as prior to COVID-19 then only half the rent is to be paid.
- Turnover rent: The tenant may only pay rent based on turnover eg pay 10 per cent of revenue to the landlord.
- Combination of the above: The tenant may negotiate that during the closure by the government no rent is payable and thereafter until their business is successfully operating again then only part rent is paid.
Termination of lease
The tenant may argue that the doctrine of frustration has been invoked which brings the lease to an end.
Generally, leases contain clauses where the tenant must comply with the terms of any law affecting the premises and that they must keep the premises open for business at agreed hours unless prohibited by law. By the tenant complying with trade restrictions imposed by the government then the tenant is not able to “peaceably possess and enjoy the premises”. Quiet enjoyment of the premises is fundamental to the lease.
The supervening events prevent the tenant from being able to enjoy the premises and this serves to frustrate the lease. Thus, the performance of the contract by either party is “impossible”.
The above options are only some that can be considered and should be discussed with your lawyer and the landlord.
Arrangements can be complicated, and it is important that they are documented correctly by your lawyer to avoid future disputes. Clear terms need to be agreed by the parties and documented in a contract.
Contact your leasing lawyer and find out what options are best for your business.
This piece was originally published by National Liquor News.