Stay or go? The commercial lease conundrum post COVID-19.

Leasing a shop or studio or office is one of the costs of running a small business.  Chances are your bricks and mortar business may well have been shut down during the lockdown that has been put in place to combat COVID-19.  But you are still paying rent.  You spoke to your landlord early on about rent relief but probably got no joy.

On the 3rd of April, the Federal Government released a Mandatory Code of Conduct SME Commercial Leasing Principles during COVID-19.  This applied to businesses including individual franchises who had an annual turnover of up to $50 million.  The objective of the Code is to “share, in a proportionate, measured manner, the financial risk and cashflow impact during the COVID-19 period, whilst seeking to appropriately balance the interests of tenants and landlords.”

You can read the full text of the Code here

When seeking rental relief the best strategy is to put your request in writing to your landlord via your managing agent.  Make your financial and business position clear, remind the landlord of your past reliable history as a tenant.  Ask for a rent-free period rather than a deferral of rent as that just delays a financial burden to when you may not be able to afford it.

Whether you are successful in negotiating with your landlord or not, this should be an impetus to look at where your business is located and whether it is still fit for purpose.  It will be a changed world in six months – you may well be able to get a better position, better shop for less money.  Think about whether you should downsize or expand for future opportunities.

Depending on your lease, there may be a way you can get out of it, if you are not at the end of your term.

Have a think about other costs that would be part of a move.  Items such as fit-out and signage.

Talk to your franchisor and get their opinion on whether you should move or not.  They may well have a list of potential costs that they can provide you with so that you can plug them all into a spreadsheet and work out whether moving is viable or not.