Property Services

Leasing… A Brave New World After COVID-19 Coronavirus

No, I am not talking about Aldous Huxley’s 1932 dystopian novel about the future, I am referring to what is looking like the “new normal” for retail business in Australia. I don’t really like that term, as a lot of the main stream media use it far too often, however as I am writing this blog, the COVID-19 Coronavirus crisis has resulted in the forced closure of tens of thousands of retail business all over the country, so things have changed.

Of course this is not unique to Australia, the COVID-19 emergency has affected the entire globe and being handled by governments in a similar manner, however this has resulted in the world’s economy to grind to a halt.

In Australia, this couldn’t come at a worse time, as our retail industry was already in serious trouble, evidenced by the plethora of retailers who had gone to the wall recently. You know the names –  Bardot, Dimmeys, Ed Harry, Forever 21, Napoleon Perdis, Harris Scarfe and many more.

Of course much of the country was also experiencing a crippling drought, then we had an awful bushfire season over the 2019/20 summer and this was followed by major storms and floods that played havoc with electricity and telecommunications to large areas of the east coast. The last thing our industry needed was a world wide flu pandemic, I mean seriously, what are the odds of that happening?

So, here we are in April 2020 in the midst of the largest health emergency the world has seen in a century and our retail industry has been smashed for six. An optimist would say, ok the health emergency is very bad, but we’ll get through it and everything will go back to normal, right ?

Well, I am not too sure about that. Before the COVID-19 shut down of most of the developed world, the financial system was already deteriorating, so now that equity markets are in free fall, tens of thousands of companies have closed and millions of people have lost their jobs, the world is unquestionably heading towards tough times. In fact the International Monetary Fund (IMF) recently advised that the global economy has now entered a recession that could be as bad or worse than the global financial crisis of 2008/09.

So, what should you do as a retailer? Well every situation is different, however the first action I would take is to immediately investigate what financial assistance you can claim from the Federal Government and your respective State/Territory Government. There are a number of grants, subsidies and other forms of financial assistance that may help keep your business afloat.

Secondly I’d check with your insurer to investigate if your policies allows for any type of business interruption coverage.

After understanding where you sit with these matters, you’ll need to discuss your financial position with your accountant, hopefully you have some cash reserves that might buffer the impact of the downturn.

Of course your staff will be one of you main priorities, so you will need to think carefully about what you do in this area – putting off staff maybe required, but if you believe they are strong employees, I’d do whatever you can to try and retain them for as long as possible. When the COVID-19 crisis passes, you’ll need the best staff you can find to re-build your newsagency business.

Lastly you really need to consider your lease (assuming you don’t already own your shop). Now I realise that you may be tied to a long term lease and are legally bound to it, however to quote our Treasurer Josh Frydenberg, “extraordinary times call for extraordinary measures”.

If you are a tenant in a shopping centre or other commercial property and have a legally binding lease on foot, generally speaking you are not entitled to unilaterally adjust the rent down permanently to a level that you think is acceptable. That said, if you have had to close your business or only been partially trading due to the restrictions imposed by the authorities, your turnover has probably decreased substantially. The Federal Government has recently introduced a new Code of Conduct for commercial tenancies and the various states & territories are in the process of introducing legislation that rides on the back of the Code – they will provide a framework for short term rental assistance that can be sought from the landlord.

Given the extraordinary circumstances we are dealing with, I believe most landlords will consider helping you with some form of rental discount in accordance with the new Code, however it was only ever designed as a short term measure. It is highly probable that the economy for the remainder of 2020 and beyond will be very tough, so it is time to seriously  think about how sustainable your lease is in the long term.

Putting aside any short term assistance that you may receive, I strongly recommend that you critically review your rent and if you believe it is just not sustainable in the long run, you should talk to your landlord about possibly re-negotiating your lease. In most cases this will be very difficult, however this is not the time to be blindly accepting the status quo of anything – when the Coronavirus emergency passes (and it will pass), we are more than likely going to experience a deep recession, so I think you should have a frank conversation with your landlord.

It’s a brave new world….