negotiation

Coronavirus – Negotiating changes to commercial leases

Any businesses that are experiencing a downturn as a result of the current economic crisis that has come as a result of the Coronavirus pandemic will know that one of the largest expenses, apart from that of staff, is its leasing of premises. We have another article on options for employers including standing down its workforce.

The Government has introduced a range of measures to assist businesses and employees with the ongoing payment of wages with the JobKeeper program and the National Cabinet has agreed to implement a moratorium on the eviction of commercial and residential tenants for 6 months. This will be implemented by the States and Territories.

The Government has suggested that commercial leasing arrangements are a matter that ought to be discussed and agreed between lessors and lessees as it is a very complicated area of law that affects businesses from sole traders to multinational corporations. There are many advantages of having these discussions, rather than seeking to strictly enforce the terms of the previously agreed leases, including:

  • The lessor can retain the lessee in the premises – this will be important for them after the pandemic ends
  • The lessee will need to continue trading from the premises – either during the pandemic and/or after the restrictions on movement are relaxed.
  • The lessor may have mortgage repayment obligations to its bank and will need some level of cashflow to assist it to do this

Any  discussions between lessors and lessees should, in the first instance, be informal and without prejudice to the written lease obligations.

There is a moratorium on evictions, but there’s not a moratorium on the requirement to pay rents. Landlords/Lessors and tenants/lessees not significantly affected by COVID-19 are expected to honour their lease and rental agreements.

Every business and each premises is different so there is no ‘one size fits all’ answer but points for negotiation could include:

  • changing the amount of rent to be paid for a period (say a reduction in rent of 25% for 6 months)
  • a rent free period or a reduced rent period (for example 3 months of no rent payable)
  • a delay in payment of the rent (same rent is payable but the obligation to pay is deferred to a later time).
  • extension of the term of the lease to accommodate any rental concessions

Any agreement that may be reached should be documented in writing and signed, and it may be that the lease if registered will also need to have any changed also registered on title.

There may be situations where no negotiated solution will work and parties may need to rely on dispute resolution procedures either now or at the end of the moratorium period, noting that the moratorium does not relieve a lessee from the obligations under the Lease, just that they cannot have the lease terminated during the moratorium period.

FURTHER INFORMATION

For further information in relation to legal issues arising from Coronavirus or if you need to discuss negotiating changes to commercial leases or licensing arrangements, please contact us on (02) 9521 2455 or email help@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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What does “Without Prejudice” mean?

Have you ever received a letter or email with the words “without prejudice” or “without prejudice except as to costs” on it? Perhaps your lawyer has sent one on your behalf? Do you even know what it means?

It is advantageous for parties to try to resolve that dispute prior to incurring the significant costs and taking on the substantial risks that are involved with litigation. In having those settlement discussions or in making offers of settlement, parties may be disinclined to make admissions or concessions for fear that they may be used against them by the other party. This is where the concept of “without prejudice’ helps.

Without prejudice” is a common law concept (now covered by statute since the Evidence Act 1995 (Cth) (the Act) was enacted) that communications marked as being “without prejudice” cannot be used by the other party as evidence in Court. This means that parties can speak openly about the matters in dispute without the risk of the other party using that offer against them later.

If you do want to be able to use the communications, you would not mark them as being “without prejudice” – you would want them to remain “open”.

So why the “except as to costs” or “save as to costs” part? Well, the privilege afforded by s131 of the Act that the communications cannot be placed into evidence does not apply to when the Court has to determine who is responsible for the costs of the litigation (ie, after the dispute has been resolved or determined by the court when entering a judgment).

In addition to these “without prejudice” communications, the various Courts have their own rules that provide for formal Offers of Compromise and the like and that govern the effect of not accepting an offer that you otherwise ought to have (the idea being to seek to have the parties really turn their mind to settling, and not wasting their own, the other party’s and the Court’s time and resources).

Ordinarily in litigation, the rule is that the losing party pays the winning party’s costs. The rules operate to change that where formal offers have been made and not accepted.

As an overly simple scenario by way of example, if an offer was made by Party A that Party B did not accept and at the hearing, Party A received a judgment for an amount equal to better than their offer, Party B can be penalized in the form of a costs order for the failure to accept that offer.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal.

For further information in relation to any legal dispute or litigation matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice.  Please contact McKillop Legal to discuss your needs.

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