The current lack of clarity on how obligations to pay rent will be treated across the various real estate sectors, is delaying landlords and tenants from implementing the Government’s desired approach to commercial parties cooperating to reach sustainable, workable and commercial outcomes that are fair to both parties.
While the Federal Government undoubtedly faces an incredibly complex challenge in managing the fast-moving health and corresponding economic crisis created by COVID-19, there is one critical question that urgently needs to be addressed:
Will tenants be entitled to a rent abatement for a defined period during the crisis?
Without clear and unequivocal direction from the Federal Government on this question, the commercial real estate sector is caught in a "who blinks first" conundrum about financial lease liabilities.
Where parties do not reach a commercial agreement, they must try to frame contractual and common law arguments to defend their respective positions – tools which are not necessarily well suited to address the pandemic environment. Should tenants simply cease paying rent? Should they vacate buildings (where remote working is possible) in order to protect their staff, or do they remain in physical occupation hoping that the landlord or Government closes the building and in doing so, strengthens the tenant's argument for rent relief?
We are already seeing landlords and tenants negotiating on interim arrangements surrounding financial liabilities under leases. However, firm outcomes are being delayed as parties hesitate to conclude those discussions for fear of disadvantaging themselves ahead of final Government regulation.
Regulatory clarity, particularly for tenants with large national leasing portfolios (in any sector) would help landlords and tenants reach agreement over the coming months of the COVID-19 crisis. While there are many positive examples, we encourage State and Federal Government to co-operate even further to provide consistency across all jurisdictions and in doing so, assist in the streamlining and fast tracking of commercial agreements between landlords and tenants on lease financial liabilities.
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