Ensure your rent relief agreements are documented correctly.
The Government has announced that a Code of Conduct will impose leasing principles on commercial tenancies (including retail, office and industrial) where the tenant is an eligible business for the purpose of the Commonwealth Government’s JobKeeper programme. The Code of Conduct requires landlords to offer tenants reductions in rent payable, in the form of rent waivers and deferrals of rent payments, in proportion to the reduction in the tenant’s business.
If you are a landlord or a tenant who has already negotiated a rent relief arrangement, or a landlord who will be required to offer rent relief, it is important that the agreement reached by the parties is documented properly. You may be considering relying on an oral agreement, email correspondence or a letter to document the agreement. Whilst this may seem like a simple option which will save you time and costs, there are significant risks if a variation to the lease is not documented correctly, such as:
- The agreement to vary the lease may not be legally binding. A lease is a formal legal document which may require variation by way of a deed, or a registered variation of lease, in order to be legally binding. It is unlikely that an email or letter will be sufficient.
- The agreement to vary the lease may not be binding on the individuals who have personally guaranteed the tenant’s obligations under the lease.
- You may not have captured the whole agreement in the letter or email clearly and with sufficient detail to avoid a future dispute, such as:
- How long will the rent relief go for?
- Are outgoings and licence fees still payable?
- If the rent is deferred, when is it repayable?
- What effect does the reduction in rent have on future rent reviews? Including market rent reviews?
- Conditions of the variation, such as the provision of weekly customer numbers and sales turnover, may not be enforceable.
- Substantial variations to a lease may have the unintended effect of surrendering the lease and starting a new one.
- Variations which are not prepared correctly may allow one of the parties to avoid their other obligations in the lease.
- The agreement to vary the lease may not be binding if the landlord sells the premises or if the bank takes possession of the premises.
Any extension of the term of a lease which is registered, or required to be registered, will need to be documented by way of a variation of lease which can be registered on title. This is particularly important if the parties have agreed to a deferral of the rent which is to be repaid over an extended term.
It is also important to consider if the bank’s consent is required to the variation of lease, and whether the agreement should be subject to the landlord obtaining that consent.
Don’t just consider what could go wrong – there are also advantages of documenting the agreement properly. For example, if the tenant is required to provide information regarding its turnover, the landlord may want the tenant to provide a warranty that the information is correct. If the landlord is considering selling the premises, a prudent buyer will be looking for a binding and well drafted agreement it can rely on.
A properly drafted variation of lease will protect the interests of both parties and avoid the significant risk of having a dispute later on. Meyer Vandenberg’s leasing team have the expertise and experience to assist you in documenting your agreement and can offer fixed fee arrangements for preparing variations of lease.
For further information please contact
(02) 6279 4402