Small business owners warn of rental time bomb
Small business operators who lease shops or other properties are warning of a ticking rental time bomb that will activate when commercial tenants are forced to repay deferred rents.
The pandemic’s destruction of the retail sector prompted the federal government to introduce a national mandatory code of conduct in April requiring landlords to negotiate in “good faith” over leases with tenants. Depending on circumstance, landlords are required to waive up 50 per cent of tenants’ rent and defer the other 50 per cent under the code, which runs alongside JobKeeper until March next year.
But retail tenants, decimated by social distancing restrictions across the country and the extended lockdown in Victoria, are warning the deferred rent component will bankrupt small businesses.
“The legislation requires 50 per cent of our rent to be deferred and repaid later,” said Bret Stremski, the founder of LPI Group, which controls dozens of children’s play space franchises, including Lollipop’s, Kanga’s, Tutti Frutti and Crazy Climb.
“This appeared reasonable at the time, but is now a burden that will most likely bankrupt many small businesses,” Mr Stremski said.
The group’s 20-year-old Lollipop’s play centre in Bentleigh East, in Melbourne’s eastern suburbs, is accruing rental costs of close to $9000 a month and will owe its landlord $80,000 in deferred rent by the time it reopens, with no revenue coming through the doors, he said.
Eighteen out of the group’s 28 Lollipop’s play centres are based in NSW and Victoria and Mr Stremski expects to close up to six in the next year as rental payments will make them unviable.
Apart from the Bentleigh centre, all the Lollipop’s are run by individual owner operators. “Why then should the landlord be guaranteed 50 per cent of their income during this time?” Mr Stremski said. Landlords, who own equity in their property, are in a better position to receive no income than small business owners are, he said.
Large national property landlords, like Vicinity and Scentre, are pushing for tighter definitions for small businesses under the code and a month-by-month extension of its mandatory conditions.
The Victorian government late last month extended its ban on tenant evictions and rental increases until the end of the year, while also boosting assistance to tenants and landlords.
The Real Estate Institute of Victoria said the process for dealing with tenancy disputes was cracking under the weight of COVID-19, as thousands of cases are banking up at the Victorian Civil and Administrative Tribunal and the Dispute Resolution Centre Victoria.
