problem, and then dealing with it in the best way possible, is all you can do. What is absolutely certain is that if nothing changes, nothing changes. You need to do something. Most banks (especially in these times of a Royal Commission) are being increasingly less vindictive about personal action against borrowers after a business goes bad. Landlords are usually the same. Why throw good money after bad? Assuming it is not all over, the easy answer is to ask the landlord to reduce the rent. That sounds good in theory but is harder in practice. The value of the freehold investment to a motel tenant is largely tied back to the income paid by the motelier and the tenure of the lease itself. If you reduce the rent paid, the landlord’s capital value will be affected the next time they have a valuation – or go to sell the freehold. The other thing is that the landlord might already be squeezing every last cent out of the property to fund their lifestyle or other commitments. Reducing the rent for them might be difficult in light of their other expenses. It helps to know the landlord’s position before you ask, so having some form of personal relationship with them is good business insurance. Of course, the counter argument is that a landlord would much rather have a tenant in there paying rent as opposed to a vacant property or a motel they need to manage themselves. If the reality is that the market has changed substantially, then that might be a bitter pill they have to swallow. It can be a help or a hindrance if the landlord is a former motelier of the property you are running. They will know the market, and may think it is simply poor management on your part. They may also know that you are good operators and are being buffeted by factors beyond your control. Either way, you need to start that conversation if you are in trouble. The longer term issue is how the industry deals with the risk of rent running ahead of whatever the magical benchmark may be. Our solution is true market reviews, which will take agreement from both sides of the fence. It is commercially accepted in every other leasing market, and for the sake of the sustainability of the industry, we think the time has come for the motel industry to join the club. End // 72
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Editorial // B Y D A V I D B U R R O U G H
THE MOTEL LEASE:
MORTGAGES & DEEDS This article continues with our discussion in relation to Deeds of Consent, which will be required by financiers in almost all circumstances where the financier does not have the security of real property. As we mentioned in our previous article, the Deed of Consent is often negotiated (sometimes extensively) before being executed by the Landlord.