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ScoMo Says: Sit!
So it’s time to ‘sit down’ and negotiate with commercial landlords to help your business ‘hibernate’ through this crisis. I was hoping for something a bit more concrete than that, but this vague Prime Ministerial instruction is what we have, along with some kind of six month ban on evictions.
To be fair, doing anything more is a legal nightmare. And Monday’s wage subsidy is good policy and more helpful in the big picture.
So let’s negotiate with that landlord. As I may have mentioned in several irate articles, they have generally been absolute dicks about the whole Covid 19 situation. But the key to negotiation is not confrontation, it is understanding. Even if it’s just understanding that you’re dealing with someone really greedy.
The Awareness Lag: Why They’re Not Getting It
To help understand the commercial landlord mindset, here’s a handy graph.
You, the one responsible for the business, have been up to your eyeballs in this hellscape for weeks now. You’re slashing costs like a maniac to save something, anything from the wreckage.
This lag is why you might have been frustrated by staff fixated on details of their entitlements when you’re thinking: I’m just trying to save your job. Because they haven’t been immersed in it as long as you.
Meanwhile landlords are like: ‘this is just the government blowing all this out of proportion’. Not joking that is a verbatim quote from one last week. Because theirs is a slow-reaction business. They make decisions at continental-drift speed. They aren’t scouring every bit of Covid economic news like we are.
And their business decision processes are very different to you or I. I’ve seen landlords leave buildings empty for three or four years rather than accept 5% less than their asking price.

A landlord discovers that risk exists
Despite the Prime Minister’s matey imagery, you are not going to sit down with your landlord. Nobody does that. You’ll need to put it in writing. Call the managing agent and let them know a formal request is on its way.
Put It In Writing With This Handy Template
Handily a friend of the blog runs a national chain of stores in the tasty frozen treat category. Last week he sent a copy of his letter that’s worked well across a range of landlords, both institutional and private. Not 100%, but pretty good results. The private landlords have been better than the big guys.
Their letter has a good basic structure that you can use yourself. The core points are:
Hi Commercial Landlord
- Our business has been ordered to cease trading by Federal and State govts for Covid 19 containment.
- Until this point our business was solvent, well-managed and a stable tenant.
- We have instituted emergency cash conservation measures across our business, like these examples
- As you would be aware, the PM has requested that commercial tenants and landlords negotiate in good faith
- We seek a 6 month rent-free period from (next payment date), to be reviewed should government shutdown policy change, then rent as a proportion of revenue for the 6 months after that
- This will allow us to resume our position as a stable tenant once we are allowed to trade
I’ve written a more formal version of this as a Word doc you can download and edit here: Landlord COVID 19 Letter . (Note some people haven’t been able to download the Word doc for some reason, here it is as a PDF Landlord COVID 19 Letter.
While you wait for a response, pay half your April rent if you’ve got the cash as a gesture of good faith. If you pay the full amount they’ll stall you forever.
What Sort Of Deal Do You Ask For?
There are lots of variables here, depending on how hard Covid has hit you. But if you’re shut down by order like those of us unlucky enough to be in events, ask for the six months that is current government guidance. That’s realistic.
Watch out for the D word: deferral. Say no to deferral. That means double overheads in the coming recession and it just pushes the death of your business back to 2021.
Turnover-based rent is an interesting one. It’s something that’s traditionally existed in retail malls, mainly in the sense of: if you have a bumper sales period, your landlord wants a bumper rent windfall. But turning that around to rent as a fixed percentage of revenue as you come out of the shutdown is a good way of sharing the risk if you can swing it.
Don’t Forget Outgoings
Outgoings is an area that’s worth your attention in these negotiations, as they’re likely to be about 20% of your rent expenses. It’s all the costs for things like carpark maintenance, gardeners, window cleaners and that sort of thing. Managing agents can be pretty blasé about those costs in the good times and they creep up.
We’re meeting with one of our landlords next week, along with other tenants in the block, to go through all these costs to work out what’s absolutely necessary. Let that garden run riot, nobody cares.
What If They Won’t Negotiate?
Sticky situation. State governments have promised various ‘no evictions for 6 months’ laws.
A worst-case scenario is: landlord refuses to budge on rent, you refuse to pay for 6 months, then they can start evicting you. That’s not an instant process. You lose your security deposit, roughly two months rent. Bingo you’re at least four months ahead less moving costs.
It will require a certain amount of you being a dick, but these are desperate times and they could have prevented all this unpleasantness by negotiating in good faith.
Do they have any further legal hold over you, like say suing for rent for the duration of the lease? I thought about asking the Motivation For Sceptics legal advisory panel, but it’s a waste of their time given the new laws only exist in press release form.
My non-lawyer view is: when all this is washed up, the courts are going to be pretty far from interested in hearing cases brought by landlords who failed to negotiate when asked to do so by the government.

Didn’t negotiate with your tenant? Get out of my court.
Should I Stay Or Should I Go?
If they won’t negotiate, it’s a complex choice. As a general observation, if you really like your premises or it has an expensive fit-out, pay half rent for a few months but remain civil and open to further negotiation.
If you’re not wedded to the premises, and if it’s basic office space where you’re just moving desks, there’s no harm in going renegade on them.
Ask yourself, while that space suited you before the virus, will it be the right space for your slimmed-down business in the recession of 2021 and beyond?
And remember, it’ll be a very different market when all this washes up. It’s quite likely you can find yourself something better and cheaper.
Advice From A Pro Lease Negotiator
This update came in late, just as I was recording this story. Blog friend with all the stores has been talking with a professional lease negotiator, who had some very useful extra points.
- A successful trading lessee in 12 months is going to be a sought-after prize, worth far more than a few months’ rent now. A point worth bringing up when you ‘sit down’.
- The words to use are ‘pause’ or ‘hibernate’. NOT ‘defer’. There is no defer as of now. Consolation for the landlord: they get an extra six months or so added onto the duration of the lease.
- Now is a really good time to introduce the %-of-turnover rent concept.
- Show them your revenue figures for Feb/March 2019 vs Feb/Mar 2020. That will help bring home the reality.
- Remember that 50% revenue downturn does not mean 50% rent discount. Do your break-even analysis with your fixed costs, it’s probably more like 20% downturn needs a 50% rent deal.
Do It Now
And finally his main point: the next 24 hours are essential for the negotiation process as April rent looms. Make contact and get our letter in NOW.
Good luck folks.
If you’re new here I write stories like this every Tuesday (and Thursdays at the moment). Get ’em in your inbox if you like, drop your email here.
Great advice, Ian.
As always, keep calm, keep records, and keep perspective. Anyone needing advice about personal bankruptcy should talk to me, since I endured one this decade caused by the failure of my training college. As always everything was really complex, what I did NOT have back then was anyone to ask what it was like. And now you do.
(For the record, the creditors were all banks and finance co’s, no staff, no one else. So I had a clean conscience).
juliusmedia@me.com
0408 498 180
Thanks Ian,
Your frank and honest suggestions and call to action was a nice wakeup call on Monday morning! We had already started the process of renegotiating an offer for our Gold Coast rental premises but were being blocked access to provide our offer to the owners by our Real Estate agents. Fortunately, we have the owners contact details and I ultimately threatened to go over the agency’s head and provide the letter to the property owners if they did not forward our letter immediately. After a stern letter to the agency owner I received a phone call from the agency owner personally guaranteeing my letter would be provided to the property owner by close of business today.
To get to this point my correspondence with the agency property manager had consisted of 6 emails back and forth in an attempt to delay taking action saying, “we are all in the same boat” and “we will be in contact with after you fill out a form”. It would be very interesting to see everyone’s email trails with their agents as mine are laughable – the last email that pushed me to my threats was to fill out a form for our commercial tenancy requesting the following:
Has your employment been terminated due to COVID19?
Has your employment been terminated for another reason?
Have you been laid off on a temporary basis?
Are you entitled to leave entitlements? E.g. sick, long service leave, annual leave
Will you be re-employed once the crisis/lockdown is over?
Have you applied for Income support from the government?
Do you have an insurance policy (such as an income protection policy) which may respond in the circumstances?
Is there anyone else in the household who is still working?
Is there anyone else in the household who will be receiving assistance?
Can you make part payments towards your rent?
Proposed Duration:
Start Date __/__/__ End Date__/__ / __ (inclusive)
After contacting our property manager to say these questions were totally irrelevant to our business circumstances she requested I fill it out as best I could and submit it….moron!
Currently agencies are being inundated with contact from owners and tenants, but this is no excuse for agencies to delay and in our case block the process of communication between tenants and owners.
After consultation with our Accountants we chose to not go down the line of % of turnover but instead decided to show good faith to offer full payment of our upcoming April rent and then asked for a 5 month differeral of 50% of the rent owing with the repayments of this 50% paid over the following 12 months starting October 2020. This in affect was asking for 2.5-month free rent period.
Definitely check with your accountant as everyone’s revenue and rent circumstances are of course different. Our Accountant suggested against showing them our figures from last year compared to this year because we have a very good rental rate, and this could be detrimental for future rent negotiations. Instead they suggested we show them our loss of revenue as a percentage. So, we conveyed our Feb/Mar revenue had dropped by 40.64% and will drop by 100% henceforth. They also suggested in our circumstances against doing the % of turnover because it was potentially a nightmare, has to be verified and also could be detrimental to future rental negotiations.
Fingers crossed they just accept our offer without further negotiation. Good Luck everyone!
Thanks Ian,
Your frank and honest suggestions and call to action was a nice wake-up call on Monday morning! We had already started the process of renegotiating an offer for our Gold Coast rental premises but were being blocked access to provide our offer to the owners by our Real Estate agents. Fortunately, we have the owners contact details and I ultimately threatened to go over the agency’s head and provide the letter to the property owners if they did not forward our letter immediately. After a stern letter to the agency owner I received a phone call from the agency owner personally guaranteeing my letter would be provided to the property owner by close of business yesterday with a response by 4pm.
To get to this point my correspondence with the agency property manager had consisted of 6 emails back and forth in what I believe was an attempt to delay taking action saying, “we are all in the same boat” and “we will be in contact with after you fill out a form”. It would be very interesting to see everyone’s email trails with their agents as mine are laughable – the last email that pushed me to my threats to go over their head was to fill out a form for our commercial tenancy requesting the following:
Has your employment been terminated due to COVID19?
Has your employment been terminated for another reason?
Have you been laid off on a temporary basis?
Are you entitled to leave entitlements? E.g. sick, long service leave, annual leave
Will you be re-employed once the crisis/lockdown is over?
Have you applied for Income support from the government?
Do you have an insurance policy (such as an income protection policy) which may respond in the circumstances?
Is there anyone else in the household who is still working?
Is there anyone else in the household who will be receiving assistance?
Can you make part payments towards your rent?
Proposed Duration:
Start Date __/__/__ End Date__/__ / __ (inclusive)
After contacting our property manager to say these questions were totally irrelevant to our business circumstances she requested I “fill it out as best I could and submit it”….moron!
Currently agencies are being inundated with contact from owners and tenants, but this is no excuse for agencies to delay and in our case block the process of communication between tenants and owners.
After consultation with our Accountants we chose to not go down the line of % of turnover but instead decided to show good faith to offer full payment of our upcoming April rent and then asked for a 5 month differeral of 50% of the rent owing with the repayments of this 50% paid over the following 12 months starting October 2020. This in affect was asking for 2.5-month free rent period.
Definitely check with your accountant as everyone’s revenue and rent circumstances are of course different. Our Accountant suggested against showing them our figures from last year compared to this year because we have a very good rental rate, and this could be detrimental for future rent negotiations. Instead they suggested we show them our loss of revenue as a percentage. So, we conveyed our Feb/Mar revenue had dropped by 40.64% and will drop by 100% henceforth. The Accountants also suggested in our circumstances against doing the % of turnover because it was potentially a nightmare, must be verified and also could be detrimental to future rental negotiations.
I Have just heard back from the Owners and they have agreed to the terms I have proposed but instead of 5 months deferment they will accept 4 months so rent would start again in September 2020. I’m happy to accept this as if all goes to plan we will at least get 2 months of free rent and I’m pretty sure if we still have no cash-flow by September I’ll utilise the government mandate of non-eviction proceedings for 6 months if we can come to a new agreement. Good Luck everyone!