Rent Negotiation and COVID-19

As of 30 March 2020, we are awaiting further details from the Australian Government about what measures may be put in place for commercial tenants in light of the impact of COVID-19. As a business owner, you may already be having discussions with your landlord about possible rent relief during this period.

This article sets out some common terminology used in rent negotiations and may be useful when negotiating changes to your rent. It is also worth keeping in mind when negotiating these measures that the Government is indicating a period of at least 6 months before trading may be able to resume normally.

You can also view our article “Negotiating Cheat Sheet” that will also give you valuable tips to help with your negotiation.

Rent Negotiation Terminology

“Rent Reduction“ means the rent is reduced, either the whole or part of the rent, from the usual rental amount for an agreed period. A rent reduction is a variation of the current rent that is payable under your lease. A rent reduction also means that it does not require the tenant to “pay back” the difference at the end of the agreed period.

“Rent Deferral” means suspending the payment of rent and deferring the payment to a later period. It does mean that the rent does need to be repaid at some point in the future. Repayment of the deferred amount may either be as a lump sum, paid as an increase to rent for a certain period or by instalments or agreed amounts.

“Turnover rent” means rent that is calculated based on a percentage of the turnover of a business. Turnover rent is most common in retail leases where a business is performing well. It may be able to be used as a way of determining repayments of deferred rent based on the performance of the business. It’s important to keep in mind that turnover rent does create an administrative burden on both the tenant and the landlord to make turnover information available.