Due to COVID our revenue has reduced by 77% and we are in a position that unless our landlord can give us a significant
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Customer: Due to COVID our revenue has reduced by 77% and we are in a position that unless our landlord can give us a significant rent reduction without any deferral we will need to break the lease. Where do we stand on the legally? Our lease still has 12 months left and they hold 4 months as a bond in the form of a bank guarantee.
JA: What state are you in? It matters because laws vary by location.
Customer: NSW Thank you!
JA: What steps have you taken so far?
Customer: Currently in negotiations and they have come back with 77% rent reduction of which 60% is deferred and 40% waived. Our concern is that with the deferred amount and this payable from October onwards means the rent will be so high we cannot afford to pay it all back. They are open to extending the lease however, with such uncertainty we are not prepared to do that.
JA: Anything else you want the Lawyer to know before I connect you?
Customer: No other than we already received a deferral for April-June which is also payable. Given lease expires in August 2021 not a long time to pay back the deferred amount. We simply cannot afford it!
Answered by John Melis in 22 mins 1 year ago
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John Melis
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John Melis, Expert

Hi, I’m John, solicitor, and reviewing your post, and may need to ask a few questions a long the way to assist you.

Concerning your important comments, what is the outcome you would like to see result.

Customer
a 50% rent reduction for the remainder of the lease with no deferral
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John Melis, Expert

Have you provided the landlord a financial statement yet ?

Customer
they have all this showing that revenue is down 77% when compared to the same quarter last year
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John Melis, Expert

is a commercial lease or residential ?

Customer
Commercial
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John Melis, Expert

Under the Code of Conduct, landlords will be required to reduce rent proportionate to the trading reduction in the tenant’s business caused by the coronavirus pandemic through a combination of waivers of rent and deferrals of rents.

Landlords must offer waivers of rent no less than 50 per cent, while the balance must be in the form of a rental deferral.

The payment of the rental deferrals must be amortised over the balance of the lease term and for a period of no less than 24 months.

The code will cover commercial tenancies, including retail, office and industrial, and will be eligible for SME tenants with an annual turnover of up to $50 million.

These SME tenants must also qualify for the government’s JobKeeper program.

In respect to further information in regards ***** ***** relief issued by the Australian government I invite you to copy and paste the link below into your browser:

https://www.pm.gov.au/sites/default/files/files/national-cabinet-mandatory-code-ofconduct-sme-commercial-leasing-principles.pdf

Customer
I understand all of this. We have already been working with this. If we were to walk away what does it look like legally? They have 4 months bond by bank guarantee which they can have.
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John Melis, Expert

You can frustrate the contract and get that back

Where a contract is frustrated, it comes to an end by operation of law rather than at the initiative of the other party. Frustration of contract may occur, for example, as a result of the death or imprisonment . However, the contracted party should be aware that the courts and tribunals are generally reluctant to find that a contract has been frustrated.

Nevertheless, it is possible to identify a number of situations where the question of frustration is likely to be a live issue. They include: death , imprisonment, change in economic circumstances, long-term illness or injury, loss of security clearance.

If a party considers that a contract has been frustrated it should communicate this to the other porty as soon as possible. Courts and tribunals may interpret a contractor’s inaction in the face of a frustrating event as an acknowledgment that the contract is still on foot.

Additionally, you may be able to terminate the contract on the basis of force majeure

a force majeure clause will allow an affected party to be relieved from its obligation to perform, or extend the timeframe for performance of, that obligation. A force majeure clause will have a list of specific triggering events, and may also contain a catch-all provision such as ‘and any causes beyond the reasonable control of the party’.

Triggering events include acts of God (earthquakes, storms, flood, and lightning strikes), war, terrorism, riot, insurrection and (sometimes) industrial action.

Force majeure events are required to be outside the reasonable control of a party claiming the event has occurred. Sometimes there are additional requirements negotiated between the parties, including exclusions for the acts or omissions of subcontractors as well as exclusions where the affected party could have taken reasonable steps to mitigate against the event. A force majeure clause will be construed against the party seeking to rely upon it.

Most clauses will provide that if the force majeure event is not resolved within a certain time, for example 60 days, then the parties will have the right to terminate the contract or perhaps to agree on a variation.

Customer
Would COVID come into either of these?
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John Melis, Expert

yes - frustration will

Customer
what would be the next steps with the Landlord if I took this option?
Customer
Thank you btw
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John Melis, Expert

You are welcome, and thank you for supporting the community.

Customer
Are you able to answer the earlier question? So what would be the next steps with the Landlord if I took this option?
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John Melis, Expert

Your Nextep is to engage a lawyer to draft the requisite correspondence to issue to the landlord in this particular circumstance. Naturally the landlord will try and challenge this decision.

Customer
Ok thanks! ***** get an extract of this conversation.
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John Melis, Expert

you can print this page

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