COVID-19 could be a game changer for leases: expert

Creevey Russell principal Dan Creevey said the forced closure of pubs, clubs, gyms, indoor sporting venues, cinemas, entertainment venues, casinos and nightclubs to try and contain the virus has negatively impacted businesses and put hundreds of thousands of people out of work.

The impact on the commercial and residential rental market would be enormous with many tenants now unable to pay rents.

“The situation resulting from the government response to the COVID-19 pandemic could totally change the leasing game,” according to Mr Creevey.

“Will the government-imposed COVID-19 regulations destroy commercial and other leases? Our message to tenants is if the landlord is trying to put the squeeze on you, we may be able to help.

“State and federal laws now say it is illegal for many tenants to enter their premises and to carry on their business in the usual way. But what is the effect on a lease? The orthodox view is that the doctrine of frustration does not apply to leases – they are more than contracts; they involve the grant of a proprietary interest in land.”

However, the property expert said that the position is far from settled as there remains a good argument that the formal declaration of the new regulations will enable the lessee to treat the lease as discharged by frustration.

“In that event, the lessor would be left with no recourse. If it could not resort to any personal or bank guarantee or other security, the lease would simply cease to exist,” he highlighted.

Ultimately, the stronger the obligation to be open for business or to use the premises for a particular purpose, the bigger the risk for the lessor.

Due to uncertainties and heightened risks, property law groups across the country are ready to offer strategic advice to tenants and evaluate their situation if they face problems in paying rent.

According to Mr Creevey, many tenants are waiting in the hope of some help from the federal and state governments with April 1 approaching, when most monthly rent is due.

While some people can pay the full month, others can pay part of it and others aren’t in a position to pay anything at all, so this situation may also involve negotiating with the landlord, he said.

“There is the possibility that the next government stimulus package will give tax relief for owners in return for waiving or reducing rents. It’s a desperate situation that needs solutions,” he said.