Business owners have spent the last week evaluating their business in the world with COVID-19. As they re-cast their revenue forecasts and make new plans for the future, many will be placing one of their largest expenses under the microscope. For Tenants worried about their rent obligations, there are proven strategies to approach the Landlord for relief.
Deferral of rent payments for a short period (e.x. 1 - 3 months) and then adding those deferred payments to the end of their lease. This means for every month you defer rent you will extend the end date of your lease by a month.
If Landlord is resistant/hesitant to a Deferred Rent plan, which is essentially a par-value proposal, try proposing a 2:1 or 3:1 extension of the lease. In essence, if the Landlord agrees to three months free rent now, the Tenant will sign a six or nine month extension added to the end of the lease in accordance with any existing escalations that would take place at the end of the term. This is a valuable solution to Landlords who have an exit strategy before the lease expiration as their pro-forma numbers will give an increased value to their exit.
If a lease extension is not a favorable solution, the Tenant can propose repaying the deferred rent in installments with payments starting in six to twelve months.
CAM Only Payments
As a gesture of goodwill, the Tenant can pay their share of common area expenses for an agreed upon period without any payment of base rent. This may be an agreeable solution to Landlords, as it ensures they will have enough cash flow to continue paying their staff and contractors to maintain and operate the building. Repayment of the base rents can be structured in a manner similar to those outlined the Deferred Rent section.
Lease Restructure and Renewal
If renewing your current lease was already in your plans, starting that conversation today could offer short term relief while achieving a long term goal. When restructuring/renewing, the Tenant will negotiate a new lease to replace the existing lease. In exchange for committing to an extended lease term, the Tenant can negotiate a new rate, potential Tenant Improvements (such as necessary changes to their existing workplace to make it consistent with new social norms established in the wake of the pandemic), and free rent options.
Sublease Current Space
Tenant lists their existing space for sublease. Note: It’s important to know we will most likely see a surplus of sublease inventory hit the market in the coming weeks. While an experienced Commercial Real Estate Advisor is the best resource to help a Tenant sublease their space, the Tenant should be prepared for: 1) downtime created by the surplus of sublease inventory and/or 2) subletting their space for less than what they currently pay.
Remember - Landlord’s understand this pandemic is impacting everyone. Many are expecting to receive calls from Tenants to discuss options for rent relief. Landlords want to see their Tenant's survive and thrive through this pandemic, so if approached in the right manner, it's possible achieve relief today without compromising the long term success of your company. Communication and collaboration with your Landlord will be key to coming towards a solution that works for everyone.