With offices and shopping centres empty due to coronavirus restrictions, interest in commercial properties boomed as the dynamics shifts between tenants and landlords.

Real-time media monitoring data provided by Streem highlights that commercial property reporting has risen since March 2020, when many people began working from home because of tighter coronavirus controls.

Commercial property agents are witnessing huge disruptions in the way people work.

According to Streem media analyst, Conal Hanna, in light of tighter COVID-19 restrictions there are huge disruptions where people are working, whether it’s in an office or in a retail store or elsewhere. This has led to some very real-world ramifications for owners and tenants.

Power shifts towards tenants

According to REA Group, the relationship between commercial property landlords and tenants negotiating leases has become topical as it impacts a wide portion of the market. This has escalated with the Australian government imposing moratoriums on evictions on residential and commercial tenancies due to the financial impact of COVID-19, leading to a power switch with the tenant receiving the upper hand in terms of negotiations.

Tips for negotiating a rent reduction with your landlord.

The coronavirus pandemic and subsequent lockdown laws have left many business owners facing a loss of income due to non-essential stores shutting down. Businesses are now struggling to pay rent on commercial leases as their cash flow starts to dry up.

What would a tenant do if they can no longer afford to pay rent? Below are some tips on negotiating a new commercial lease with your landlord.

1. Ensure your books are up to date.

Earlier last year, the Government recently declared its intention to implement a mandatory code of conduct for commercial holdings to help small and medium-sized businesses affected by COVID-19. This suggests that commercial landlords will be forced to consent to a reduction in rent, so the cost is shared by both parties.

These rent reductions are based on the decline in the business’ turnover. With this in mind, make sure your business’ books are up-to-date and illustrate any loss of revenue arising from company closure.

2. Don’t waste time having ‘the conversation’.

It is critical that if commercial tenants are facing financial challenges due to COVID-19, they should speak to their landlord as soon as possible.

It is important to remember that tenants do not enter into agreements with their landlord with the view to continuing a rent-free lease, as landlords have certain fixed costs which must be maintained.

3. Demonstrate attempts of remaining financially viable.

Businesses were forced to adapt rapidly during the early months of the coronavirus pandemic, with many turning to other revenue sources or changing their business model to remain afloat. According to Burges Rawson, a landlord may be more receptive to a tenant’s situation if they think the tenant creates lateral and alternative opportunities to generate revenue.

Flowchart

4. Aim to maintain tenancy.

Occupied commercial property is the best outcome for both parties, since it ensures that the tenant and their business are in the best position to survive the downturn, while for the landlord continues to earn some rental income.

A vacant commercial property means the business and the tenant have not survived, although for the landlord it equates to no rental income until the property is leased, and with vacancies expected to increase in most asset groups seeking a new tenant is challenging.

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