Negotiating ‘in good faith’: what does this mean for commercial tenants and landlords?

The aim of the Victorian Government’s Commercial Tenancy Relief Scheme (the Scheme) is to alleviate financial hardship faced by small business tenants and landlords as a result of coronavirus (COVID-19).

Under the Scheme, landlords and tenants are required to co-operate and act reasonably in all of their discussions and actions and to negotiate rent relief in good faith with a view to reaching an agreement.

So what does negotiating ‘in good faith’ mean? It involves parties communicating with each other and having discussions honestly and fairly with the genuine intention of reaching an agreement. It also involves behaving in an open and transparent manner and providing sufficient and accurate information within the context of negotiations.

Small business owners shouldn’t feel pressured or that they can’t negotiate rent relief out of concern that their landlord won’t negotiate their lease once it ends. Tenants have the right to request rent relief and doing so should not jeopardise their lease renewal. Entering into negotiations is in the best interests of the landlord, as this will help ensure they have a tenant running a successful business once restrictions are lifted.

In any business relationship, including between small business tenants and landlords, open communication is vital. If a tenant is having trouble paying their rent because of coronavirus, we recommend they keep paying what they can afford, work out what their financial situation is (i.e. what their reduction in turnover is) and talk to their landlord to try to reach agreement on rent relief.

It’s essential for tenants and landlords to communicate with each other about their situation as early as they can. Tenants can use our letter template to help in requesting rent relief in writing, and read our responses to frequently asked questions to make sure they’re clear about what they need to provide with their request.

If a tenant or landlord has further questions or any concerns, they can contact us. If they do find themselves in a dispute, they can apply to the VSBC for mediation to support fair tenancy negotiations at no cost.