A recent shopping centre rent recovery action offers a useful demonstration of how loss of future rent is calculated where a lease is terminated early or a tenant abandons premises.
The lease – for retail premises at the Calamvale Central Shopping Centre – ran from April 2009 until March 2014. At a current annual rent of $35,000, the arrears at the hearing date – after the application of a bank guarantee – were only $550. However with 3 years left to run, future rental and outgoing contribution losses aggregated $148,000.
The landlord issued recovery proceedings. When the matter came before the District Court this month,
his honour had to decide what “discount” should be applied to the future unpaid rent to represent the prospect of re-letting the premises before March 2014.
Noting evidence that the “Centre had a relatively poor rental history” in part because of the competition provided by the Sunnybank Shopping Centre, there were currently 11 vacant tenancies.
Combined with the fact that the premises were only small – 30m2 – and not well located, the owner’s leasing agent testified that the prospects of re-leasing “were not good” and that “the most likely tenants [were] law firms … and other quasi professional businesses such as real estate agencies…”
Assessing the chances of re-letting as best as he could, his honour decided that an appropriate “discount” – after also taking into account that “expensive rent incentives” would likely be required for any re-letting – was one third.
Thus he applied a one third “discount” to the aggregate future rent and outgoings contributions to arrive at the landlord’s likely loss as a result of the tenant’s abandonment of her obligations to pay rent in the future. This sum was also reduced by a further 10% to take into account that the early receipt of payment.
Naturally it was open to the landlord to wait until after the lease expired or until after the premises had been re-let to calculate an exact loss which could then have been claimed precisely.