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Pandemic Fallout – How to fix your Lease.

Having a hard time paying rent on your commercial space because of the COVID-19 lock-down?Is your Landlord allowing you to stave off rent payments? How are you going to pay the deferred rent back to the Landlord when the quarantine period is up? There are lots of remedies.

Leases may seem stringent and non-negotiable, but they are “living” documents. I use the word living because they reflect how the relationship with your Landlord works given the business environment you operate in. COVID-19 is disrupting that environment and your lease should reflect that. I was a commercial Landlord for long enough to know what they need to be profitable and stay open. They need tenants, that is their business, renting space.

You can change your lease through successful negotiations. If you can’t afford to pay your rent because of reduced income which I believe will be commonplace in the coming months,Landlords will lose their ability to pay expenses like the mortgage. They need tenants paying rent, much the same as tenants need the Landlord to keep the building open for business. Both parties will have to help each other out in these times by creating a security for each other.Below are a couple of ways to make both parties come to agreement.

Lengthen the Lease:

Let’s assume you are currently in a Lease and you want to reduce your rent so that you can afford to pay it. You offer the Landlord a chance to have a longer lease term, but at reduced rates. There is a silver lining for both. The Landlord can leverage the lease for financing because of the length of the term being extended, and the Tenant can now afford to pay the reduced rent in the new environment the pandemic has created. Without this agreement, the Landlord can’t pay his costs, and you don’t have a business.

Payment Deferrals:

Most Landlords hold the covenant in the lease that you are to pay each month’s rent at a certain time and are expected to pay on time without excuses, including a pandemic. This is the most fundamental part of a Lease. Asking for a deferral on rent won’t come without some agreement on how it will be paid back. Is the Landlord willing to set up a schedule for repayment? In order to be able to afford it, do you lengthen the Lease to get the lowest monthly payment possible?Yes, you can do this, and Landlords in this time have to keep their cash coming in and will have to make concessions in working with widespread cash flow issues.

Rent Forgiveness:

This can be handled in many ways but the two most common are reducing the rental rate as stated in the lease for a portion or remainder of your term, or flat out asking for forgiveness on outstanding payments to the Landlord. The facts are going to be apparent to all tenants and Landlords in the coming months, cash will be short, and adjustments will have to be made.Concessions on both sides will be needed for both parties to remain successful.

Strong Negotiations:

You may only get one crack at these negotiations in preparing for your future after the pandemic,best to do it right. It is good to know what is in your lease, and what your options are going into talks that may save your business. Get a lease review done so you know what position you are starting negotiations from so you can plan on going where you need to be. In knowing what Landlords are looking for, making them an offer that helps them as much as you, as they are integral to a good negotiation. Knowing your financial needs, making a business plan and proforma cash flows in these new times, and incorporating them into your lease is how you are going to remain open and profitable.

Don’t hesitate to start planning now for the future now by being proactive in your business modeling. Your lease can be negotiated to suit the times we live in.

Written by
Ian D. Toms

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