With the World Health Organisation (WHO) declaring a worldwide pandemic on 11 March 2020, we knew this was going to be an unpredictable year for the economy.
In these uncertain times, landlords and tenants should be reviewing their leases to understand what provisions might assist in circumventing the potential losses of business profits throughout this pandemic.
Our experienced commercial litigation team have put together answers to your frequently asked questions and steps you can take to assist your business throughout this difficult time.
Government relief, what you need to know
On 29 March 2020, the Australian Government announced new measures to protect commercial tenancies (since that date, on 7 April, the Government has introduced a mandatory code which adopts the ‘common set of principals’, which are discussed below).
READ MORE: PM announces mandatory code for commercial tenants and landlords
Foremost, the Government has imposed a moratorium (prohibition) on evictions for six (6) months for non-payment of rent. This means that if your business has been impacted by coronavirus and you are suffering financial distress as a result, your landlord is unable to evict you.
(Note: the prohibition relates to non-payment of rent and not other breaches)
The following points are what the Nation Cabinet have named a “common set of principles” to underpin and govern commercial tenancies and to encourage landlords and tenants to reach a ‘win-win’ resolution:
- Tenants and landlords are encouraged to agree on rent relief or temporary amendments to a lease;
- Landlords should consider reduction or waiver of rental payments for a defined period for impacted tenants;
- There should exist an ability for tenants to terminate leases without penalty and/or seek mediation or conciliation in relation to breaches on the grounds of financial distress;
- Commercial property owners should ensure that any benefits received in respect of their properties proportionately benefit their tenants;
- Landlords and tenants not significantly affected by coronavirus are expected to honour their lease and rental agreements; and
- There should be cost-sharing or deferral of losses between landlords and tenants, with Commonwealth, state and territory governments, local government and financial institutions to consider mechanisms to provide assistance.
Whilst in theory the principles will work, this will only be the case if tenants and landlords conduct constructive and well-informed negotiations.
The moratorium is not a ‘get out of jail free card’ and in fact, if landlords and tenants do not reach an amicable resolution which has been documented to be legally enforceable under the terms of the lease, tenants could find themselves personally liable for any sums of money unpaid that would have been due and payable under the terms of their lease.
It’s important to act promptly to reach a mutual arrangement with your landlord to safeguard your interests and personal liabilities.
READ MORE: Affect of COVID-19 on supply contracts and construction contracts
Do landlords or tenants have a duty to report COVID-19?
Within a short time after WHO declared the pandemic, countries announced unprecedented lock downs and many of us became immediately concerned about obligations under leases. Many leases contain provisions in relation to the occurrence of irregular events such as the outbreak of an infectious disease. Such provisions may require a tenant to take the following steps:
- A tenant may be required to promptly notify a landlord of any infectious disease among its employees, whether that has occurred or if there are reasonable grounds to assume it could occur.
- A tenant may be required to comply with a landlord’s requirements in relation to an infectious disease among its employees.
- A tenant may be required to report an infectious disease to the relevant authority and may need to give information required by the relevant authority.
- A tenant may need to comply with directions of that authority, usually at a tenant’s cost, including by thoroughly fumigating the premises.
General lease provisions may also require:
- The adherence to health and safety procedures; and/or
- Specific obligations not to cause any harm to, or expose anyone to, any health and safety risks.
What if a tenant fails to comply with its obligations under a lease?
If either party to a lease (tenant or landlord) breaches a term of the lease, the other party may be able to terminate the lease and sue for any damages. In this regard, tenants should review their leases and seek legal advice if they have any queries.
READ MORE: Lawyers critical for property transactions in QLD and NSW during COVID-19?
What if a landlord closes the building or shopping centre to prevent COVID-19?
A lease may contain a clause allowing a tenant a reduction in rent (and other payments under the lease) if that tenant cannot reasonably access or use the premises. Such a clause may provide protection to a tenant if a building becomes inaccessible, damaged or unfit for occupation.
If a retail shopping centre were closed, the provisions of retail lease legislation may come into play and legal advice should be obtained in this regard.
What if a tenant decides to close its shop due to COVID-19?
With the exception of an express provision permitting a tenant to cease trade/operations and close its premises/store in the event of a pandemic, it would be difficult for a tenant to establish that it has a right to do so. Many leases contain terms which provide that tenants must trade at certain times and remain stocked and staffed during specified hours.
It is important to check your lease with a lawyer before making a decision to shut your shop to see if you would be in breach of your lease if you did so.
What if a landlord is forced to quarantine or close a building or shopping centre on directions from a government authority?
The affected parties should consider whether their lease contains a force majeure provision.
What if tenants inside a shopping centre wish to negotiate as a collective?
In certain circumstances, it might be beneficial to approach a landlord as a group of tenants with a view to reaching a collective resolution.
It is important before commencing any group or individual negotiations to seek advice from an experienced commercial litigation lawyer as to your individual rights.
What about business insurance?
It is important that businesses review their insurance policies to ascertain whether business interruption losses are recoverable.
Further, you should contact your insurer to see if you’re eligible for a reduction in premiums whilst not operating.
How can Attwood Marshall Lawyers help?
Our experienced Commercial Litigation Lawyers can provide you with expert independent legal advice about your specific circumstances as a tenant or landlord. Attwood Marshall Lawyers can review your lease, negotiate on your behalf, settle disputes or take legal actions if your rights are compromised.
For more information or to discuss your circumstances, please contact our Commercial Litigation Department Manager, Amanda Heather on direct line 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071.
