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Commercial Tenants and Insolvency

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As you may recall, last year the Queensland Government released regulations in response to the COVID-19 pandemic providing landlords and tenants that have been affected by COVID-19 with a guide for their negotiations. Amongst the guidelines were provisions for commercial tenants to negotiate rent relief if they suffered a reduction in turnover due to the COVID-19 emergency for a fixed period (which has now expired).

With many industries continuing to feel the impact of COVID-19, and concern that insolvency rates will be on the rise as a result, it is important that landlords prepare for these conversations and consider how to maintain their own commercial standing following a tenant’s insolvency event.


Insolvency on the rise

Now that state relief measures have ended and there is no longer an obligation on landlords to waive or defer rent payments, landlords may experience an increase in commercial and retail tenants defaulting under their lease obligations due to financial hardship. Most often, the terms of your commercial or retail lease will stipulate that if a tenant enters into liquidation, administration or receivership, then they are in default under the lease.

The law sets out specific actions that a landlord must take once a tenant is in default before it can act against the tenant by, for example, terminating the lease or re-entering the premises.

In the quarter ending March 2021, ASIC reported a large number of external administration appointments. Industries highly affected include accommodation & food services, business & personal services and retail. As the ATO resumes pursuing and enforcing debt recovery actions and the temporary relief in insolvency laws have ended, this number is expected to increase while COVID-19 continues to wreak havoc on small businesses across the state.

What you can do

If you are a landlord with a retail or commercial tenant, it is important to understand your rights should your tenant default in rent payments or become insolvent. A failure to properly exercise your rights at law and under your lease or appropriately document any amendments to your lease could have detrimental effects in the future.

If you are a tenant experiencing financial hardship, Redchip’s insolvency team are available to assist you with working through your financial position and options available to you. A failure to act early may have serious consequences for not only the tenant company but also any directors of the company, including those who have signed personal guarantees under the lease.

Find out more

If you would like to discuss your options, please contact our experienced Property Team on 07 3223 6100 or email redchip@redchip.com.au for an obligation-free discussion.

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