I have an office in VIC with its lease ending on the 15th July 2020.
The tenant has come back to me and given their Profit and Loss for March and April. It’s at approximately 50% and 60% respectively down.
They have also shown that they have applied for JobKeeper.
The tenants lease finishes on the 15th July 2020. They are yet to give me an answer on whether they are renewing the 3 year option, with repeated attempts from myself.
My question is, assuming they are now under the “Code”, are they still required to exercise their option (whether its yes or no) as per their lease ?
And if they don’t am I able to advertise and re-lease ?
Also another question the tenant mentioned about point 12. of the code,
“The tenant should be provided with an opportunity to extend its lease for an equivalent period of the rent waiver and/or deferral period outlined in item #2 above. This is intended to provide the tenant additional time to trade, on existing lease terms, during the recovery period after the COVID 19 pandemic concludes”
The tenant mentioned that this means that they can get the rent waivers from 15 April – 15 July (end of current lease) then have another 3 months until 15th Oct at the same reduced rent. Also all without signing another lease. Is that correct ?
I took it as to mean that their lease can be extended by the same amount of time that the pandemic and waivers lasted, but then it is at the usual “existing lease terms”, that is normal rent. It makes it difficult in this case as the lease finishes on 15th July, however the pandemic will probably still be in force.
Overall, it looks like I will have to give the some sort of waiver from 15th April until lease end 15th July. I wanted to basically give the tenant two options.
1. Reduced rent (30%) for one year if they take up the 3 year option. (Works out cheaper for me then re-lease)
2. If “no” to Option 1 above then advertise and re-lease. With them vacating at the end of their current lease (15th July) (also giving them some sort of waiver from 15 April – 15 July)
Is this something I can do taking into consideration all the legalities of the “Code” now ? I basically want the tenant to take up the 3yr option (preferably), however if they don’t, I don’t want them staying past the lease end term, at the reduced rent, without a lease in place and then they leave.
I would rather have it up for re-lease now and have them leave by the 15th July.
The tenant is a little lets say “shady” and I believe that they are using the pandemic to their advantage to get a lower rent as they have mentioned that there are other properties around that they can get 3 months rent free etc. Im guessing their plan is to get reduced rent until their current end of lease (15 July), stay on at reduced rent for another 3 months then up and leave to a new premises with all the incentives. So basically me subsidising a tenant at lower rent for them to up and leave at the end anyway.
So overall does anyone envisage any problems or it coming back to bite me with giving them;
Option 1. Reduced rent (30%) for one year if they take up the 3 year option. (Works out cheaper for me then re-lease)
Option 2. If “no” to Option 1 above then advertise and re-lease. With them vacating at the end of their current lease (15th July) (also giving them some sort of waiver from 15 April – 15 July)
* In addition to Option 2, if they would like to stay on month to month after 15th July (whilst it is advertised for re-lease) they are welcome to, however the waiver will be half of the waiver given from 15th April to 15th July.
A lot to digest….thanks for any responses.
G’day Pascoe2.
Yeah, this is one of the many, many, many complexities that the, IMHO, poorly thought out NCMCC has constructed.
Have you read what I wrote at the link below? There is also a very handy flow diagram I constructed at the same link.
https://www.propertyinvesting.com/covid19/
It seems to me the following principles would apply re: the option:
1. Leasing principle (LP) 2: The tenants needs to comply with the terms and conditions of the lease
2. LP12: Tenants given the opportunity of a rental extension equal to the waiver/deferral period
3. LP13: The rent has to be frozen.
Together with the above, you will need to consult with the state legislation as it may be more or less onerous than the NCMCC.
Now to praticalities…
Your current lease will have language about the timing and protocol of how/when the option has to be exercised. This will almost certainly be at the tenant’s instigation, so aside from alerting them, I wouldn’t do much else other than watch and wait. Perhaps their business is not viable, or they will seek to renegotiate the option, my point is, the ball is in their court more so yours.
Note: if they don’t extend, then the principles of the NCMCC still apply, so you might be ‘stuck’ with that – but remember they are points to negotiation, not law. The law is made at the state level, which is why you need to consult more closely with the legislation in your jurisdiction.
Some legal advice might be well worth the investment.
– Steve
P.S. You might also consider the merits of a letter say that you note the tenant has not yet exercised their option per the lease, and that if they don’t, your position is that the lease terminates on 15 July. That may prompt them into action.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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