Much-loved local businesses in Mullumbimby are being been hit with substantial rent increases that could force some of them to close.
Five shop owners in the town have reportedly been slugged with rent hikes of between 20 and 100 per cent by their landlords in the past six months.
The shop owners, who asked to remain anonymous, said the increases were unreasonable and threatened the viability of their businesses.
One owner said he was facing a rent increase of more than 50 per cent and had been told the new figure was ‘non–negotiable’.
‘We don’t know what we’re going to do, but I think it’s quite likely that we will have to shut up shop which I think would leave a massive hole,’ said the shop owner.
‘These rent increases are going to transform the town. We’ve seen it happen in Byron Bay, where small local businesses have been pushed out, and if we’re not careful it’s going to happen here.’
Paying more for less
Another local business owner said his rent had also been increased by more than 50 per cent, despite the fact that the size of his shop had been cut in half.
‘I’ve had to let two staff go and cut the hours right back for the one who’s left,’ the owner said.
‘At this point I’m basically just working to pay the rent and stay alive.’
‘The landlord thinks he’s being reasonable and that he’s just charging the market rate, but $280 per square metre [per year] isn’t reasonable, it’s ridiculous. Just because the value of his property has doubled doesn’t mean I’m in a position to pay double the rent.’
Leases at an end
The shop owners are virtually powerless to challenge the rent increases because all but one of them has reached, or is about to reach, the end of their lease, leaving them at the mercy of their landlords.
Mark Cochrane, a local real estate consultant with more than five decades in the industry, said that when a retail lease ends, ‘the lessor [landlord] has the right to ask what he wants and it’s up to the lessee [tenant] whether they want to pay that or move on’.
‘A lot of the time, a retail lease will have an option for the lessee to extend it, and that may contain conditions such as that any rent increase is capped.
‘But when the lease expires and there are no further options to extend, the lessee becomes vulnerable.
‘Lessees should always be on top of the terms of their lease to protect themselves.
‘But at a certain point it comes down to supply and demand and the lessor’s ethics. We’re all human beings and there is a place for compassion.’
The only option for a business owner in this position is to challenge the landlord’s valuation by bringing in an independent valuer.
However, this can cost more than $1,000, which must be paid by the tenants if they are the ones challenging the asking rent.
Even then the landlord has no obligation to accept that valuation.
Despite the high cost, one of the Mullumbimby business owners is hiring a valuer after his landlord told him his rent was going to increase dramatically.
‘It was understandable that there would be some type of increase when the lease was up, but this is bloody ridiculous,’ the business owner said.
Driven by property prices
The retail rent increases appear to be driven, at least in part, by the boom in the local property market.
With the value of property soaring, new property owners are taking on larger mortgages and many are expecting larger rental returns.
There has been an increase in retail rents more generally across Byron Shire that is partly being reflected in Mullumbimby.
However, The Echo understands that there were a couple of isolated examples of dramatic rent hikes in Mullumbimby prior to the recent increases, which are now being used by some landlords and real estate agents as a ‘market rate’ benchmark.
Business owners such as local solicitor Wroth Wall say profit margins are not increasing at anywhere near the rate needed to keep up.
‘It’s becoming increasingly more challenging for business operators to make a reasonable living,’ Mr Wall said.
‘Rents are going up, other overheads like insurance are going up, but there isn’t the money just rolling in by any means.’
There are fears that if this process continues Mullumbimby will once again be sprinkled with empty shopfronts.
‘When the GST was introduced in 2000 we had five shops close down in Mullum and within two years we had 11 vacancies,’ Mr Cochrane said.
‘The rents will continue to increase while there are no vacancies and then when you start to see empty shops they will begin to go down again.’
However, there is also the possibility that local businesses will be replaced by chain stores as Byron Bay has experienced.
But not all landlords in Mullumbimby are slugging their tenants with large rent increases.
A number have made a deliberate choice to only increase rents at the rate of inflation to ensure that long-standing businesses can continue to operate.
Jenelle Stanford, the president of the Mullumbimby Chamber of Commerce, said she believed the rent increases were the outcome of decisions by individual landlords.
‘My landlord is fantastic – he basically put a freeze on rent increases for us for a number of years when things were tough,’ said Ms Stanford, who owns the newsagency on the main street of Mullumbimby.
‘There are definitely people out there doing the right thing.’
Mr Wall said he believed landlords had a ‘moral obligation’ to keep the livelihood of their tenants in mind.
’Ultimately I think a good landlord wants their tenant to be sustainable, to make money out of their business in the same way they are making money out of the property.’
Mr Cochrane said he often advised property owners to be cautious when setting retail rents.
‘I often say to people, “Be careful where greed leads you”,’ he said.
‘It may be that you can get a bigger rent but if the person then has to leave you have an empty shop.
‘Greedy lessors eventually hurt themselves in the long run.’