Get started on negotiating a commercial lease with your landlord
If you own a business and you're finding it difficult to meet lease commitments such as rental payments due to the COVID-19 pandemic, you may be able to negotiate the terms of your lease with your landlord.
Get started on negotiating a commercial lease with your tenant
If you're a commercial property owner or you represent one, your tenant may be finding it difficult to meet their lease obligations due to the impacts of COVID-19 on their business.
Tenants may be eligible for rental relief or lease negotiations up until October 2020.
Land tax relief to support commercial leasing
The NSW government is supporting commercial tenants who are experiencing financial distress as a result of COVID-19 with a new land tax relief package. It includes enacting the mandatory National Cabinet Code of Conduct and land tax concessions for commercial landlords.
Eligible commercial landlords can apply for a land tax concession of up to 25% of the 2020 calendar year, for relevant properties, if they pass the savings on to their tenants in the form of a rent reduction.
A 3-month deferral on outstanding land tax amounts is also available. Eligibility criteria will apply.
Examples of commercial lease negotiations
Example 1: Landlord and tenant negotiate in good faith and agree on a temporary rent relief arrangement
Brian owns a small clothing store inside a major regional shopping centre, with 4 casual employees. The store is still operating but customer foot traffic has dropped significantly since the COVID-19 social distancing rules were introduced, and Brian can no longer pay his landlord his usual rent of $8000 a month.
Brian checks if he is eligible for support under the NSW commercial lease package. While Brian does not receive JobKeeper payments because his 4 casual employees have been employed for less than 12 months, he determines that he is eligible for rent relief because his store had an annual turnover of less than $50 million in the 2018–2019 financial year and his turnover has declined more than 30% in comparison to the same time last year.
Brian contacts his landlord to explain the situation. Brian provides his landlord with bank statements and management accounts that show sales turnover for the past month has fallen 70% in comparison to the same period in 2019. Brian also provides a Business Activity Statement (BAS) showing the store’s annual turnover was less than $50 million in 2018–2019.
Brian’s landlord recognises it is better to have someone in the premises than no-one at all, and it is in both of their interests that Brian’s store survives the COVID-19 downturn. The landlord and Brian agree to rent relief of 70%, corresponding to the 70% decline in the store’s turnover. Of the total $5600 in monthly rent relief, the landlord and Brian agree that half ($2800) will be a waiver and half ($2800) will be a deferral. At the end of the 6 months, Brian will return to paying his regular $8000 a month in rent and will also begin to pay off the $16,800 of deferred rent over a period of 24 months.
As Brian and his landlord were able to reach a rent relief agreement, Brian’s landlord is entitled to tax relief of up to a maximum of 25% of their land tax liability for 2020 on the relevant property. The landlord advises Service NSW of the agreement reached with Brian and receives a waiver on the land tax they are yet to pay.
Example 2: Landlord and tenant negotiate in good faith but cannot agree on a temporary rent relief arrangement
Rita runs a hairdressing salon in a Sydney suburb. Her store sits on a main road and is usually very popular. Rita’s salon has been significantly impacted by COVID-19 and the corresponding health restrictions. She has suffered an 80% decline in turnover and is receiving JobKeeper payments for her employees.
Rita approaches her landlord for support as she can no longer pay the rent. Despite providing the landlord with evidence that she has suffered an 80% decline in turnover and had a turnover less than $50 million in 2018–2019, the landlord does not agree to a rent reduction.
Rita contacts Service NSW for help and is referred to the NSW Small Business Commission. The NSW Small Business Commission arranges a mediation for Rita and her landlord. When Rita, the landlord and an experienced mediator get in the same room they are able to negotiate an agreement that all parties agree to, guided by the leasing principles in the National Code of Conduct for commercial tenancies.
Rita’s landlord advises Service NSW of the agreement reached with Rita. Because the landlord has already paid land tax for 2020, they receive a rebate of an equivalent value to the relief offered to Rita, up to a maximum of 25% of their 2020 land tax liability.