Last night, Prime Minister Scott Morrison announced Stage 2 of commercial and social distancing measures to address the global COVID-19 challenge.
In relation to commercial operations, this includes closures to:
- Food courts in shopping centres (operators will still be able to provide takeaway);
- Beauty-based services such as beauty clinics, nail and tanning salons, tattoo parlours;
- Amusement centres and arcades, indoor and outdoor play centres.
This is in addition to closures of ‘non-essential’ services announced on the weekend.
In the background, there’s a lot of noise regarding rental relief. We may hear from the Government today on this issue for residential and commercial tenants. But without pre-empting any announcements, there will still be a need for tenants and landlords to work collaboratively through the foreseeable future. My colleagues in commercial property management have provided the below tips to manage relationships right now:
- Don’t ask for an indefinite rent-relief period. Landlords are trying to protect the viability of their operations – often multiple enterprises – at the moment. Just like you, they can’t afford to lose an income stream overnight, especially with no clarity.
- Either directly or through the asset manager, propose an ongoing strategy, with detailed breakdown, that suits both parties. If it includes reduced payment, how long will that period last and what variation is involved?
For instance, could you pay 50% of your current lease rates for the next three months, aiming to increase payments to 75% for the following three months, and then return to current lease terms by the end of 2020?
This would allow the landlord to move forward with greater certainty and provide you with added cashflow which, combined with bank Federal and State government measures, could help you through 2020.
If you need assistance in raising your case with your lender, contact the Green Team on 07 3899 2899.
Obviously, how you’re leveraged will determine your decision. However, as above, could you absorb reduced rent over a stipulated period? If your asset is in retail or tenanted by what has been deemed a ‘non-essential’ service, you need to consider allowances to retain returns. Talk to your property manager around options.
Ask for a caveat on the agreement. If you come to the table with an offer of reduced rent, as your show of good faith, ask your tenant to renew or take out the next option on their lease ahead of time.
Some residential investors have been offered a period of rental relief from their lenders. Give me a call to talk about those instances.
Keep your team around you
These times require everyone to be level-headed. Work closely with your team right now – your asset manager, financial adviser, accountant, solicitor and myself, to ensure you’re making the best decisions in the current climate.
It’s important to note that not all will be impacted, and the impacts will not be equal. If you haven’t already, review what Federal stimulus measures you can qualify for. There are also various state offerings available. Please call me should you wish to discuss these measures.