A lease surrender might seem like the last resort, but here
is why it might not be the worst idea to consider.
Current economic conditions show trading performances across
commercial market sectors with varied impacts–positive and
negative. The high levels of voluntary administrations and subsequent
insolvencies suggest that for many, the headwinds have taken their toll.
Some lessees have survived on degrees of respite carried
over from the past couple of years, and some simply struggle in the climate of
high inflation and difficult employment. Often the deferral of rent probably
translates to deferral of the inevitable.
For lessors too, the conditions can be tough, with many
experiencing a degree of mortgage stress in the higher capital cost cycle, and
often significant reduction in their cash flow.
Pick your cliche, but the essence remains for landlord and
lessee alike, that it is not easy to accept these realities but often better to
get the right advice in early and salvage the best from a difficult
circumstance.
For lessees:
• Early negotiated surrender may cost a lump sum now, but done while there is
still capital in hand, it could preserve other assets, and in extreme
circumstances, avoid costly wind-up and insolvency actions.
• Reputational protection in a surrender over a landlord eviction down the
line.
• For multisite tenants, a possible opportunity to consolidate.
• Potential for re-useability of fit-out in some cases over costly make goods.
For landlords:
• Lump sum termination monies may provide relief in the
short- to medium-term for mortgage costs, insurance, rates, and other taxes.
• An ability to search for a new occupier while some income
is still covering the premises.
• Negotiating now with an embattled, but solvent tenant
versus costly pursuit of an insolvent tenant later.
Many of these discussions often happen far too late, but in
the case of highly effective communication between the parties, much better
outcomes could be reached. Often the commercial property manager is one of the
key identifiers in this chain, and commercial agents adept at lease
negotiations are ideal as mediators in the ensuing discussions.*
(*Ensure that you have professional advice in relation to
legal and financial matters prior to making final decisions.)
This article was originally featured in www.smartpropertyinvestment.com.au.
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Jason Gwerder
Friday, 16 May 2025
