Lease Restructuring: Test the Rent Proposal

Establish the Existing Lease Liability

Reconcile the lease obligations to invoices and payments before deciding what concession to request. Identify the tenant and landlord by legal entity, the premises, remaining term and any options. Read the executed lease alongside every side letter and variation so an earlier concession does not disappear from the calculation.

1. Calculate rent due for each period under the operative terms. Include review provisions and the expiry of any existing rent-free period.
2. Reconcile outgoings and other charges to their contractual basis and supporting records. Separate an estimate from a reconciled charge.
3. Match payments and credit notes to the landlord’s ledger. List disputed amounts separately, with the reason and source reference.
4. Inventory the security deposit or bank guarantee and identify each guarantor. Record what each document secures and any proposed release or replacement.

A bank payment establishes money leaving an account. The remittance and landlord’s ledger establish how the landlord allocated it. Resolve differences before presenting an agreed arrears balance. Keep security as a separate item unless the documents and parties support its application against a particular debt.

FinTrace saves hours of statement conversion and review when you need to reconstruct those payments across a large PDF bundle. Its searchable transaction ledger retains source references, giving your team the payment evidence for the reconciliation and more time for the proposal itself.

Identify who can approve and execute the change for each party. An agent’s authority to collect rent does not establish authority to release arrears or guarantees. Record any required landlord financier consent under the relevant documents, alongside the tenant’s own approvals.

Company status also affects authority. The Australian Securities and Investments Commission’s small business restructuring guidance requires practitioner consent for dealings outside ordinary business during that process. It identifies satisfying an admissible debt or claim as outside ordinary business. Refer the proposed arrears treatment to the practitioner before promising a separate repayment arrangement.

Compare Deferral, Reduction and Arrears Terms

Compare each concession by the liability it changes and the cash it requires later. A permanent reduction lowers rent for the agreed period. A deferral changes payment timing. A waiver releases the specified amount on its stated terms, while instalments spread payment of a balance that remains owing.

Fictional Current and Proposed Schedule

Assume a company owes $24,000 of existing rent arrears. Current monthly rent is $8,000 and outgoings are $2,000. All amounts below are fictional cash amounts inclusive of any applicable GST, with no interest, fees or rent reviews during the illustrated periods.

The proposal releases $6,000 of arrears on execution and pays the remaining $18,000 in twelve monthly instalments of $1,500. It permanently reduces rent to $6,000 for the remaining term. Outgoings remain $2,000 monthly. For the first three months, it defers $2,000 of each month’s reduced rent. That creates a separate $6,000 balance, repaid over months four to nine at $1,000 monthly.

In months one to three, $7,500 comprises $4,000 paid towards current rent, $2,000 outgoings and $1,500 old arrears. From month four, current rent returns to $6,000 cash. Adding outgoings and both repayment streams produces the $10,500 peak commitment. The original arrears are still separately identifiable throughout.

Specify what happens if trading fails. In this fictional proposal, the $6,000 arrears release is unconditional once effective and reduced rent already accrued does not revive. Unpaid instalments of the $18,000 old balance remain tenant liabilities. So does unpaid deferred rent, separately recorded. Actual recovery and any guarantor exposure depend on the operative documents and applicable insolvency rules.

A conditional waiver needs its own failure scenario. If missing a payment revives an amount, show that amount and the event beside the repayment schedule. Ask the solicitor to settle the effects on each guarantee and security instrument explicitly.

Surrender is a separate negotiated option. Compare its agreed exit payment, arrears, make-good costs and relocation or closure costs against continued occupation. Identify the effective handover event and which liabilities the settlement releases. Merely vacating is not an agreed release.

Test the Revised Cash Commitments

Test every proposed payment against cash available when it falls due, including the period when deferred rent starts to be repaid. Use a weekly forecast where receipts and obligations fall within the month. Reconcile opening cash to bank balances and distinguish available funds from restricted funds.

Support customer receipts with debtor records and collection history. Include wages, tax payments, suppliers, utilities and finance commitments at their expected payment times. Keep loan drawdowns and asset-sale proceeds separate from trading receipts, with their funding conditions visible.

Fictional Base and Delayed-Sales Tests

Continue the proposal above. Assume each scenario starts with $5,000 of unrestricted cash, which the adviser retains as a minimum operating buffer. The figures are monthly summaries of an underlying payment-timing forecast. They cover all non-lease cash commitments, including tax cash flows, on the same cash basis as the concession schedule.

The delayed-sales scenario moves $8,000 of receipts out of each of the first three months and beyond the initial rescue period. It changes timing without assuming those sales are lost. The total funding gap to preserve the buffer is $13,500 across those months. Even using the entire opening $5,000 leaves an $8,500 cash deficit by the end of month three.

At the base forecast’s $11,000 monthly capacity, months four to nine leave only $500 after the $10,500 lease commitment. The concession therefore fits that forecast, with little room for further delay. The delayed-sales scenario supports only $3,000 monthly while preserving the buffer, so the proposed $7,500 cannot be promised without additional support.

Close the gap with documented funding, a lower payment commitment or a different timetable agreed by the landlord. An expected injection without approval and availability evidence stays outside funded cash. Test when delayed receipts actually arrive against the repayment peak. A later recovery does not pay an earlier due instalment.

Document the Variation and Check Payments

Record the agreed variation, its approvals and its payment allocation rules before using it as the company’s revised commitment. The document must distinguish negotiation terms from obligations that have become effective.

Check the state or territory retail leasing regime and whether it covers these premises. In Victoria, the Victorian Small Business Commission’s lease variation guidance explains that some variations can create a new lease. A new retail lease created through variation requires a new disclosure statement. Assess the actual change before treating the document as a simple rent amendment.

Have the solicitor settle the operative wording and execution requirements. The adviser’s record needs the following details:

• The parties, premises and lease documents being varied, with the effective event and remaining term.
• The rent reduction, waiver and each distinct repayment balance, including GST treatment, due dates and allocation order.
• Required consents, authorised signatories and evidence of execution, including any financier condition.
• The effect on guarantees and security, naming every release, continuing obligation or replacement instrument.
• Concession expiry, review events and any condition that restores an amount or changes the payment timetable.
• Responsibility for monitoring, reporting and responding to a missed payment or unmet condition.

Keep an unresolved dispute as a stated condition of negotiation. If it needs a separate legal assessment, use the commercial lease litigation guide. Preserve the disputed amount in the reconciliation until the parties resolve its treatment.

After execution, reconcile the first payment to both the bank record and the landlord’s allocation. Under the fictional schedule, the first $7,500 payment must reduce old arrears by $1,500 and leave $2,000 of that month’s rent deferred. The old arrears balance becomes $16,500, while the deferred-rent balance becomes $2,000. A different allocation requires an explanation or correction.

Assign the company’s finance lead to update both balances after every payment. Assign the supervising adviser to review any missed due payment, unmet funding condition or receipt delay that breaches the forecast buffer. Before month four, confirm that the company can meet $10,500 and that both repayment streams appear separately in the landlord’s account.