Such a situation would be no different if the rent established at the commencement of a lease is set to align with the prevailing market rental and several years later the market value of rent for those premises in that location increases substantially, according to Daniel Butler and Bryce Figot of DBA Lawyers.
“On first blush, it appears the tenant is paying substantially below the prevailing market value in, say, years four to five of that lease, but that rent is still reflective of market value provided that tenant’s rent has been adjusted in accordance with the review criteria in the lease of an annual increase of, say, 3 per cent or CPI,” they said.
“A subsequent change in market conditions does not alter the fact that the five-year lease was set to market with annual adjustment at the commencement of that lease.”
The view is contrary to the one expressed by Townsends Business & Corporate Lawyers, who said a landlord not providing a tenant that is a related party with rent relief could end up with a situation where NALI arises.
Further, Mr Butler and Mr Figot said not all businesses are adversely impacted by COVID-19 and many tenants can thankfully continue to meet their normal commitments.
“In particular, a business typically would want to continue to satisfy its obligations under a lease agreement by paying rent on an ongoing regular monthly basis,” they said.
“If it does not, it may place its continued occupation of the premises at risk and the landlord may seek to utilise the security bond or rent guarantee towards any outstanding payments subject to any protection afforded to the tenant under state or territory legislation.”
ATO assistant commissioner Dana Fleming agreed with this view, writing recently on a LinkedIn post that many businesses are managing the impacts of COVID-19 and don’t need to ask their landlords for rent relief.
“If this is the case, you are of course being commercial in making this decision and NALI would not apply,” Ms Fleming said.
Lawyers facing off. I wonder who wins. Certainly not the cluents stuck in the middle.
Thanks DBA. Has been a concern and also an issue for auditors as to “how” do they get information from the tenant to know if the tenant qualified for JobKeeper. Just seems out of scope asking the tenant for such sensitive information. But I am not an auditor.