Business guide to Coronavirus

COVID-19: Advice to landlords of small to medium businesses

With so many businesses experiencing hardship due to COVID-19 and needing to restrict their trade, what advice do we have for landlords when this occurs?

Can landlords restrict or close trade on the premises? 

Landlords may not have any explicit obligations under their lease(s) or at law to take appropriate measures to prevent or contain COVID-19 in their premises or to provide additional services, such as cleaning. They may, however (and probably do) owe a duty of care to notify tenants when they become aware of a confirmed case within their building and/or of any reported cases of confirmed infected persons who may have been in occupation of, or visiting, their building.

Many leases contain provisions which allow landlords (acting reasonably) to close their buildings, individual premises and/or common areas in the event of an emergency, either temporarily or for the duration of the emergency.  

A confirmed COVID-19 case would probably, in the current circumstances, constitute an emergency. It could then be considered reasonable for a landlord to close the building for so long as it takes to deep clean and thoroughly disinfect the premises. 

What can landlords do if a tenant elects or is directed to restrict trade? 

Given the unforeseen nature of the COVID-19 pandemic, leases do not generally contain provisions which deal with events of this type and lease obligations will apply regardless of any external circumstances.  

Pending any direction provided by Federal or State Governments on this matter, landlords and tenants will need to engage openly and honestly with one another to try to reach mutually agreeable (and hopefully temporary) outcomes.

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How does this impact your rental income?

A tenant’s capacity to pay rent, outgoings and other amounts payable under a lease during these times may be limited and, in some cases, non-existent. 

Whilst landlords are of course facing their own pressures, it is probably advisable that they, so far as they are able, adopt a reasonable approach which may be commercially preferable to terminating a lease and ending up with empty premises.

In more ‘normal’ circumstances, a tenant does not become a ‘bad tenant’ overnight. If, for example, under the new COVID-19 restrictions a tenant is forced to close, or is limited in what it can sell, this is bound to impact upon its ability to make payments under the lease through no fault of its own.  

If the landlord can accommodate temporary ‘respite’ arrangements with its tenants, such as rent holidays or rent abatement, and the tenant is able to weather the COVID-19 storm, this is beneficial to both parties in reinforcing a good commercial relationship between them. 

At the same time ensuring the landlord retains tenants in place, who will recommence rental and other payments in full once we reach calmer waters. 

The alternative is for a landlord to strictly enforce its lease and to terminate and re-enter the premises in the event of non-payment of rent, outgoings, etc.

This risks not only causing damage to its reputation as a landlord given the current situation, but also being left with empty premises which it is unable to rent for the foreseeable future.

An open and honest dialogue is the best way forward for both landlords and tenants.

 

It is important to note this information does not represent legal advice and you should seek specific legal advice for your circumstances. 

This article is intended to help you understand your options and decide what is right as a commercial landlord. If you need legal advice on the specific issues facing your business as a result of COVID-19, we recommended contacting Australian Business Lawyers & Advisors.

Catherine Ngo

Senior Editor and Content Writer – Business Australia

Catherine is passionate about unravelling the latest news and insights to help entrepreneurs, small business owners and employers.

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