In light of the current challenges to the retail environment, there are growing concerns from commercial tenants for some form of rental relief if their businesses are to stay viable during and post the COVID-19 crisis.
Clear and open communication between tenant and landlord will be key during the rental relief discussion period to ensure a fair outcome for both parties. Tenants need to discuss the ‘lay of the land’ with landlords, but in return landlords need to provide information to tenants about the options available. The most common of these options include:
- Rent deferral periods
- Extended leasing arrangements
- Rent-free periods.
Below outlines suggestions for lessee’s to consider when they are talking to their landlords for rental assistances. Please note the options outlined are a guideline only and assistance from your financial adviser is recommended prior to entering in to rent assistance negotiations.
Lease with more than two years remaining
Rent reduction is an option for leases with more than two years remaining, noting that any reduction made now will need to be recovered over the life of the remaining lease period.
For instance, a tenant may enter into a three-month 50% rent reduction period (starting 1 April 2020 to 30 June 2020). The 50% balance would then be deferred for repayment over the remaining life of the lease, starting 12 months from this altered agreement.
This 12-month delay of deferred repayments provides the tenant an opportunity to recover from the crisis.
Lease with less than two years remaining
In circumstances where less than two years is remaining on the lease, the tenant may pay a reduced rent of 50% for a period of three months (as outlined above). However, for leases of this nature, it may be negotiated that the balance 50% of rent deferred is not repaid by the tenant during the leasing period. Instead, the tenant may extend their current lease for a further 12 months on the existing terms.
Rationale for this approach is that having the tenant repay the 50% of deferred rent within the 2-year initial leasing period may result in further hardships for the tenant. Extending the current lease period provides the landlord with security of tenure which is of high value during these uncertain times.
To determine which COVID-19 rental assistance package option best suits your needs, please contact Hung Tran or a member of our national Real Estate and Construction team.
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