COVID-19 and the ensuing government shutdown of businesses the government has deemed to be “non-essential” is crippling small businesses and their ability to cover many of their expenses, including but not limited to rent, payroll, utilities, etc. The purpose of this article is to give tenants of struggling businesses ideas of how to potentially approach their landlord if they are having difficulty making their current rental payments on their commercial space during this difficult time.
The information provided here is not to be construed as legal advice and should not be interpreted as legal advice in any case. If your business is suffering and you are having difficulty making your rental payments, it is recommended that you do NOT just stop making your payments without first contacting your landlord. Reach out to the landlord and explain to them your current situation and ask them to either defer or abate the rent on your space/building until the stay at home moratorium is lifted. In many cases, if the landlord agrees to abate or defer the owed rent, they may choose to add those months on to the end of the lease term.
Another option is to negotiate a solution where you offer to “split” the rent with the landlord. It is important to realize that many landlords find themselves in the same situation as the tenant in regards to paying their mortgage on the property. Tenants rely on their business income to pay the rent, while landlords rely on their tenants’ rental payments in order to pay the mortgage on the property. Ask the landlord if they will reduce the rent by a specific percentage. Some landlords might agree to a fifty (50) percent discount on the rent and will count it as a full payment. This appears to be a very “fair” solution as it enables both parties to share in the hardship equally. Neither party is fully satisfied, but it is one both parties can agree upon in many situations. It is a win-win in the current environment.
Another possible solution is to renegotiate the current lease. If there is currently less than a year on the lease, the landlord may be interested in entering a new longer term lease while taking some concessions on the lease up front.
The course of action you choose will depend on many factors. It is always best to review the terms of your lease and your options with your trusted commercial real estate professional and with your legal representative.
Keep in mind, depending upon your current State, County and City, there may be some protections in place for tenants who are unable to make their currently monthly rental obligations. For example, at the time of this writing, the county of Los Angeles has enacted an eviction moratorium through May 31, 2020 with the tenant having up to twelve (12) months to repay any back rent after the moratorium is lifted. It is important to stay current for any updates on these policies as they are subject to change as government officials and lawmakers navigate through the effects on the economy from the pandemic.
Written by Patrick Sharples, Director, G & S Group | KW Commercial. Lic # 01245463. (714) 293-2792
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