Circumstances for rent reductions

Lady in cafe looking at laptop

Tenants have a variety of reasons for wanting a reduction in the rent they have agreed to pay for their retail shop. Often, when the business isn’t going too well, a tenant wants a reduction in the rent. Or perhaps they’re ill and can’t devote as much time to the business or they have personal problems that are a big distraction.

When you enter into a lease on a retail premises, you are taking on a serious financial commitment. The duty to pay rent is a key term of the lease contract – you have agreed to pay the rent for the whole term of the lease.

The landlord doesn’t have to agree to a rent reduction just because you’ve hit a rough patch.

However, if you have a good relationship with your landlord and you’ve met all the other lease terms, it may be worth trying to negotiate a rent reduction for a specific length of time.

Prepare your case

If you decide to try to negotiate with your landlord, be prepared. Carefully develop your case and back it up with evidence, including financial data and examples of retail outlets similar to yours. The landlord will want to hear a compelling argument for rent reduction and the benefits for them.

Sometimes you may want a rent reduction because of something that’s beyond your control. For example, a general economic downtown may be impacting on many retail businesses.

In this situation, the landlord may be persuaded that it’s better to have less money coming in, rather than try to find a new tenant during tough economic times.

The geographical area in which the shop is located may be undergoing change, such as a new highway bypass reducing traffic flow. Again, the landlord may prefer to have the shop occupied and have some cash flow rather than see it empty.

Falling behind in the rent

Talk to your landlord before the situation gets out of control. Don’t let the rent fall into arrears or pay it late. This can result in the landlord taking possession of the premises and locking you out (without written notice) but still claiming rent until another tenant is found.

Other reasons

There are other reasons why a tenant may want a rent reduction, such as damage to the property or the landlord’s unconscionable conduct  or misleading or deceptive conduct. These are covered in the Retail Leases Act 1994 which allows the tenant to take their case to the NSW Civil and Administrative Tribunal.