Motel Leases - What is the Outlook?
- Posted By Andrew Morgan
Motel leases can be looked at in some ways as a mix of commercial, retail and residential leases all built into one all “accommodating” document. The challenges within the accommodation industry over recent months cannot be understated, and the same goes for many other industries also. The Mandatory Code of Conduct in regard to “commercial property” has been useful as a platform to work from, but it was always going to be difficult to fully cover all the many and varied leasing arrangements across all industries, including motels. The basic fundamentals seem to have been able to assist, however as always, if either Lessee or Lessor does not act reasonably, then no system can work as effectively as it is intended.
This leads on to the fact that the leasing of motels, hotels, caravan parks, etc has seen many changes, challenges and improvements within the system since it really gained traction in the early to mid 1990’s. Some of these have been through improved ideas, processes and systems from those working within, however others have been forced changes, generally as a result of events outside the industry’s control. Again, the same applies to many others not just accommodation.
These forced changes resulting from historical local, state, national and international events both positive and negative all have played their role in shaping and moulding this successful tenure of business ownership. Some recent ones that come to mind are the GFC, the resources sector ups and downs and now a global pandemic.
Having recently been contacted by a large number of people from both within the accommodation industry and outside, many are looking for some sort of direction going forward, particularly in regard to leasing. Each business and property will have been impacted differently and each will have a different way of moving beyond such a situation. Negative situations often provide business owners and creative thinkers with different and inventive ways of marketing their businesses to potential new, existing and former guests, which is already being seen. Although in the minority, there have been some areas that have not been impacted as heavily as others. A few motels here and there with client bases that are largely work related guests of specific industries have continued on their normal course of trading. Not all, but some sectors within agriculture, government, medical, communications, civil construction and mining industries have continued to demand accommodation in certain areas of the state.
The extraordinary event that we have experienced is exactly that and needs to be treated accordingly. Looking forward in regard to business’ trading data, future earnings, leasing terms including rents, etc for all businesses, the past few months will need to be dealt with as an extraordinary event. The period of time that a region is economically impacted either positively or negatively needs to be considered on a more normalised trading basis as opposed to this abnormal period. Possible ways to deal with this may be considering the business’ trading and leasing arrangements over the past few years for the impacted period of time and making the appropriate allowance. In most cases the affected trading period will need to be discounted altogether as it will have no real relevance to the business’ normal course of trading and future earnings going forward. This is already a common accounting practice for events that impact a business heavily in a negative or positive way.
The ongoing shaping and improvements as time goes on within the accommodation leasing industry allows it to evolve and out of such situations as the present, new and creative ideas and improvements are born. How to deal with different situations that may not have been planned for in the past are now considered. With the benefit of experience, simple wording changes within new leases or updates/amendments to existing leases ensures the end users (Lessee and Lessor) have an improved platform to work within. This continued evolution is why the leasing tenure of ownership has been so successful over the past 30 years.