MUST BE DONE ON CASE-BY-CASE BASIS
COVID-19 Lease Negotiations: Many landlords and tenants are struggling with the impact of COVID-19-related closures and restrictions. These issues include loss of income, reduction in sales, reduced rent payment collections, and the need for restructuring lease terms to address today’s many unique challenges. Below are some of my own tried-and-true procedures and programs for addressing these issues, considering both landlord and tenant situations.
First and foremost, to do this right, these situations must be addressed on a case-by-case basis. Both landlords and tenants must review their lease in-depth to fully understand each other’s obligations and duties. Tenants must submit written requests outlining their individual situation, explaining how they have been affected and what they propose they need to continue functioning in this climate. Landlords must respond accordingly, reminding tenants of the landlord’s obligations to their lenders, investors, and tax obligations.
Landlords: DO NOT create a “blanket” rent relief or rent moratorium program intended to apply to all tenants in any one situation or property. This is not a wise or best practice solution to the many diverse issues presented by the pandemic’s impact on tenants. Once again, it is important to take on the situation on a case by case basis. This may take more time and effort, but it is necessary to appropriately create terms that apply to each individual tenant’s needs. Some tenant’s businesses (banks, financial and government institutions) may not have been as negatively impacted and no rent concessions are needed or warranted. Some businesses (drive-thru restaurants, cleaning companies, and some medical providers) may actually have increased sales as a result of the COVID-19 situation and again, no rent concessions are requested or warranted. In other cases (bars, restaurants, salons, and call centers to name a few) tenants may have been seriously impacted—even legally required to close—and they will require a more serious consideration for rent relief and/or renegotiation of their lease terms. It’s important to get a clear picture of how tenants are impacted and establish the amount of rents due. To do this, request additional information from the tenant including updated financials, gross sales, business plans, and a determination of payment schedules. In some cases, a landlord must arrange to prepare formal default notices and delivery to the tenant. Depending on the response from tenants, landlords may proceed with collections, evictions, and or negotiations for resolution of outstanding balances and lease payments going forward. Legal counsel may be required depending on your tenant mix, business profiles, progress in negotiations level of delinquencies, and legal notice requirements.
Tenants: It’s important to understand your lease agreement and what your obligations are. Additionally, get to know and understand your landlord’s duties and responsibilities. Give thoughtful consideration to how your business has been impacted by the COVID-19 situation; can you pay your rent and meet your other business obligations? Make a realistic COVID-19 business plan and outline how you will modify your business operations, reduce expenses, and other actions to stabilize during this time as well as long-term. Present this plan to your landlord; respect their burdens; and propose what you can do, for how long, and what’s next for your business. In some cases, it may require significant negotiations, legal counsel may be required, and resolution may be possible.