You are here: Home > Story of a Retail Disaster > Story of Retail Disaster

Story of Retail Disaster

Tenant owed $200,000 plus to Landlord, settled for $30,000 over 12 months

Because of a Confidentially agreement signed at the Victorian Small Business Commissioner (VSBC) I cannot use real names

This is a true story

Only the names have been changed to protect the “guilty” 

Dragnet https://www.youtube.com/watch?v=o1hgGchn8p8

 I was approached by a Shopping Centre manager to see if I could help a very close friend of his with lease issues, I agreed.

When it was delved into it was discovered that the tenant was in deep, deep financial shite.

History

She had a very successful store operating in Melbourne CBD & was approached by a Leasing executive to open a second store in another centre in close proximity to her existing store, with substantial fit out contributions. It was in a dreadful location 2/10, she naively signed a lease with very poor advice from her Solicitor. Solicitors are not the best person to advise on retail lease issues, thy are not on the ground & do not know what is happening in the Shopping Centre industry

She then had 2 stores in Melbourne CBD at 2 different Shopping Centres owned by 2 different landlords.

 Both landlords are owner/managers in the shopping centre industry; major & experienced operators & players.

Tenant had already lost close to a $1 million when I was approached

She had 1 good store that was profitable & 1 store that was a “bleeder” she was very close to going under, also it could have had have ramifications for her residency in Australia

She could not pay wages, Super ATO or suppliers

Advice

MM & A advice was to close “bleeder” ASAP which happened a few days later.

Un beknownst to me at this stage was that an action had been taken in the Magistrate Court against her company & her personally.

The Court action was 3 months old & the landlord had not taken out a judgement, normally this can happen after 28 days.

Stage 1.

I immediately organised a Notice of Defence & lodged it with the Magistrate court within a couple of days which stopped the landlord “in his tracks” from obtaining a Judgement. Once a judgement has been obtained it is very difficult & costly to set aside. Tenant would have been on the back foot, if she already wasn’t

Stage 2.

 I lodged a Notice of Dispute with the Victorian Small Business Commissioner (VSBC) for Mediation of a dispute. The landlord agreed to mediate (he does not have to) if he chose not to, I would have taken the matter to VCAT instead, a bit more costly however.

By lodging the Notice of Defence at the magistrate Court & lodging the Notice of Dispute with the VSBC, it gave the Tenant some breathing room & allowed her to pay off suppliers etc. & get back on her feet.

It took 3 or 4 months to agree on a date for VSBC

Stage 3.

At the Mediation, she was very nervous & brought along a friend for comfort & assurance

Her English was very basic

The landlord had a bevy of representatives at the meeting 5 in fact with a ‘hot shot” lawyer doing all the talking. Quite intimidating for a first-time attendance at a VSBC hearing.

It started at 1.30pm on a Friday afternoon & was supposed to end at 4.30pm It ended finishing up at 6.15

The landlord offered a ridiculous settlement figure, queried the equity in the tenant’s property & we went back & forth all afternoon. I said It didn’t matter what figure that eventually was agreed on, there had to be the ability to pay. Otherwise we will be back in VSBC or the Magistrates Court or VCAT in a couple of months

The debt the Landlord was claiming was in excess of $200,000 of which the tenant had no ability to pay whatsoever.

The VSBC mediator was an excellent mediator, the VSBC is a wonderful asset that Tenants can utilise.

Numbers of Retailer Mediations have increased by 13% in the last 12 months

We eventually agreed on $35,000 payable over 12 months.

The moral of the story?

The landlord knew that if he proceeded to Wind up the company & chase the personal guarantee it would be a very costly exercise for him; possibly would have had to expend some $50 to $60k & receive nothing as the Tenant would have had to have declared bankruptcy. Then the Landlord would have to deal with Liquidators & bankruptcy trustees & receive absolutely nothing.

Liquidators are only interested in their fees. As for bankruptcy trustees they are not from “planet earth

And It’s not great for the landlord’s reputation to do so, as they are a public company.

The landlord was most reasonable in the circumstances.

All in all, it was a great result for both parties, the tenant’s other business is thriving & she is back on her feet

MM & A charged the Tenant around $4,500 for the total exercise & we did have a little difficulty getting paid.

The tenant has since recommended several other “good” retailers to MM & A, so we are all happy in the end.

Retail recession

The retail recession is a term” abhorrent to landlords” but is in full play, small retailers are “bleeding at the moment. In one day alone we were approached by 3 different retailers to help them with their leases.

 

Richard Mc Donnell

McDonnell, McPhee & Associates  2008 - 2009

Back Email a Friend View Printable Version
 
Privacy Policy and Disclaimer