NEW

1. Negotiating with Landlords in
Turbulent Times
22 March 2012

7. Introduction
Factors that are causing difficulty for retailers
include:
• the emergence of on-line retailing
• the convenience of purchasing goods on-line
• the relatively high Australian dollar
• the slump in the property market
• rising job losses
• concerns about the world economy
• banks now increasing interest rates
• new government taxes

8. Introduction (continued)
Options for retailer:
• Seek reduction in rent;
• Seek to assign the lease or sub-let the premises
• Surrender the lease
• Commence action against the landlord
• Vacate the premises
• Cease paying rent

9. 1. Seeking a Reduction in Rent, or
other Concession
Tenant should consider the following:
• Give the landlord evidence of the reduction in sales
• The tenant should provide the landlord with a plan
• Effect on the value of the premises from a yield
perspective
• Landlord will seek to be released from any claim

10. 2. Assignment or Sub-Letting
Tenant may consider assigning the lease to another
tenant or sub-letting part or all of the premises
• Very prescriptive use
• Difficulty with assigning the lease is finding a suitable
assignee
• Sub-let a portion or all of the premises, if permitted
under the terms of the lease

11. 3. Surrender Lease
Landlord usually requires at least the following:
• The tenant must continue to pay all rent and other
amounts owing under the lease
• The landlord agrees to seek a replacement tenant
• The tenant must bear all costs incurred in finding a
replacement tenant, including agent’s fees
• The tenant may be required to fund part of an incentive
payable to the replacement tenant
Alternatively, landlords will simply request that the tenant
pay a sum of money as consideration for the surrender of
the lease

12. 4. Action Against the Landlord
• In Victoria, if there is a dispute between a landlord and a
tenant, the dispute is required to be mediated between the
parties
• VCAT is a no cost jurisdiction
• The cost of a VCAT proceeding can be very expensive
• There is some variability in the competence of members at
VCAT
• Rare that either party can be certain of the outcome
• Proceeding at VCAT will take many months before it is
heard

13. 5. Vacating Premises
The tenant should consider the following:
• Did the tenant pay a security deposit
• Is the lease in the name of the individual tenant or if a
company, has the tenant provided a personal
guarantee
• The tenant’s reputation
• Does the tenant have other retail premises leased by
the tenant?

14. 5. Vacating Premises (continued)
If the tenant vacates premises before the end of
the lease, the tenant should be aware that the
landlord will be entitled to either:
• Accept the tenant’s repudiation of the lease and
terminate the lease; or
• Affirm the lease and seek to recover from the tenant all
rent, outgoings and other amounts as and when such
amounts fall due under the lease

15. 6. Cease Paying Rent
Issues a tenant needs to consider:
• The lease can be terminated and there is no guarantee
that the tenant will not be able to get back into
possession of the premises
• A landlord can initiate proceedings against the tenant
and its guarantors for its losses
• A landlord could issue a winding up notice against the
tenant
• Reputation of the tenant will suffer

16. 6. Cease Paying Rent (continued)
• A landlord can usually charge the tenant interest at the
default rate
• If the tenant has persistently defaulted in the payment of
rent, this may mean that the tenant is not entitled to
exercise its option for the further term under the lease
• If the tenant is refusing to pay the rent, it is likely that a
landlord will be willing to negotiate with a tenant in those
circumstances

17. Questions
Further information
Rohan Ingleton | Partner
T: +61 3 9205 2012
E: rohan.ingleton@middletons.com
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