Mediation case study: How a Sydney gym negotiated a rent reduction
It helped tenant and landlord understand the impact of COVID-19 on each other's finances
Andrew* was forced to shut down his Sydney gym when COVID-19 first hit in March 2020 and was unable to meet the terms of his lease. He was worried that, as gym memberships were being frozen during the lockdown period, he could have a 100 per cent reduction in turnover and would have to let many of his trainers and other staff go.
To mitigate this, Andrew quickly reassessed his business model and switched to an online fitness offering. But even with a rapid uptake, Andrew was still unable to meet the terms of the lease.
Andrew suffered an 80 per cent downturn in turnover and sought to negotiate a rent reduction with the lessor (landlord or property owner), a small property owner who had substantial debts. The lessor was reluctant to provide relief as he had not received any mortgage relief but understood that both parties had to share the financial risk and cashflow impact of COVID-19, and therefore initially provided a three-month rent waiver.
After a three-month forced closure, Andrew was able to reopen, but at reduced capacity. After several months of restricted trading, the business was also required to absorb the cost of having a dedicated hygiene marshal on duty at all times.
In July, Andrew approached the lessor for further relief but the lessor declined. Both parties agreed to mediation, understanding that it was compulsory for them to undertake mediation before pursing claims in the civil courts.
When the mediation day came, both parties were nervous as they did not think it would be effective. The mediator gave them both the opportunity to discuss the matter and air their grievances. At first, both parties refused to budge. The tenant wanted a waiver of their rent. The landlord was hesitant as he doubted the accuracy of Andrew’s financial statements.
After two hours, the mediator adjourned the mediation for two weeks to give Andrew the opportunity to obtain further evidence of his decline in turnover.
During the second mediation session the mediator was able to help both parties understand each other’s financial position and assist in identifying options that suited them and would not have been available under the regulated guidelines. By the end of the mediation process, both parties were relieved to have resolved the dispute and have a degree of financial certainty.
*Name has been changed