The Cliftons Property Team share their top advice on how to approach a commercial lease negotiation with your landlord to ease the pressure on your business during COVID-19.
For businesses, forced shutdowns due to coronavirus have caused a drastic decline in, or in some cases, complete elimination of revenue. And for many, the squeeze created by outgoing costs like commercial rent creates a pressure that is simply unsustainable. Knowing how to navigate a conversation with your landlord to negotiate your rent is therefore essential to make the process of securing a lifeline quicker and less painful.
We asked the Cliftons Property Team to share their wisdom with businesses commencing commercial lease negotiations. With expertise in managing commercial tenancies across multiple jurisdictions, read their top tips for manoeuvring through the process.
Do your homework on the Code of Conduct for Commercial Tenancies in your region
With most jurisdictions’ government codes now released, it’s important to be aware of the regulations relevant to your state or country. While each government’s approach will vary slightly, if you are an SME with turnover less than $50M, you are eligible for rental relief proportionate to your loss of revenue. 50% of this relief can be by rental waiver with the balance to be negotiated between the tenant and Landlord as an amortisation over the remainder of the lease or an extension of the lease.
Ensure you secure any available government support first
Before asking for a reduction, it’s up to you to ensure you have applied or arranged any government assistance or grants available to your business. It can’t be expected of your landlord to solely provide relief through rent cuts alone.
Reduce your overheads and create alternate revenue sources
Try to keep your business viable by:
- Cutting expenses wherever possible
- Finding alternative revenue generating streams
- Adjusting your business model
Taking these steps will go a long way in helping you put a strong case to your landlord.
Go into negotiations prepared
The Cliftons Property Team recommend organising as much evidence as possible before entering converstaions, including proof of revenue loss, measures you’ve taken to reduce costs or generate alternate revenue sources, and any government assistance you’ve secured. Having a clear picture of what you’ve done thus far and what you need from them will make the process more efficient and successful.
Keep in mind, commercial properties are owned by large corporations who must provide transparency and value to shareholders.
If all tenants were to cease paying rent, this would put owners under significant pressure. Showing clear proof of your situation will assist them in determining the validity and authenticity of your request for rental relief.
Approach your landlord early to commence negotiations
If you need rental relief, don’t delay in starting the application process. It may take longer or be more involved than expected, so the sooner you kick things off the better.
Don’t just stop paying…
It goes without saying, but never cease your rent payments without first negotiating with the landlord and coming to an agreement.
Could you ask for a revenue share agreement?
A revenue share agreement is an arrangement based on your landlord taking a percentage of revenue you generate, rather than a fixed monthly rate. This can be hugely beneficial during periods of uncertainty when external factors prevent you operating at a profitable capacity.
The Cliftons Property Team were able to secure such an agreement for one commercial lease they manage, resulting in great relief to the business with shutdowns are in place.
Not all landlords may be interested in such an option, but it’s worth asking the question during negotiations.
How to find out more
The Australian Property Council have published a guide to navigating the code of conduct that it is worth taking a look at.
And if you’re still feeling overwhelmed, The Cliftons Property Team have now opened their services to the public to assist businesses.
They can help with:
- Advice and assistance for negotiations with landlords on Covid-19 related rental relief
- General advice on the Code of Conduct for Commercial Tenancies
- General lease advice
- Space planning for tenancies to meet social distancing requirements (with our in-house design team and the latest architectural software)
If you are experiencing difficulty or simply want a confidential chat, get in touch with our property team today at firstname.lastname@example.org.