It’s an unprecedented time for businesses of all types, thanks to the COVID-19 pandemic. One of the first expenses that comes to tenants’ minds when they are looking at their balance sheets? Rent. With executive orders freezing evictions in many states, how should you be responding as a landlord or a tenant to the current crisis? The experts at Metro 1 Commercial have put together some tips to help you get through this.
For Tenants
We’re all in together. Listen, I wish I could tell you that banks could eliminate mortgage payments and landlords could, in turn, forgive rent payments; but the reality is that hardly anyone can afford to do that. On the same token, landlords can’t afford to evict all the tenants asking for some sort of relief, and so if you work with them in the right way, you could keep your lease and stay afloat during these challenging times.
I want to be very clear: there is no magic solution, but the best thing you can do is talk to your landlord.
Everybody seems to think that landlords are sitting on a pile of cash and that they are greedy individuals who will never attempt to help. The reality is, most landlords are small businesses just like you, who depend on rent payments to stay afloat just as much as you need customers to buy ice cream from you or clients to make appointments. If you don’t pay your rent, your landlord may not be able to make their mortgage payment and could get foreclosed on.
However, landlords understand and sympathize with the hardship that is occurring right now. Most likely, they want you to want to stay in the property, so talk to them about your specific financial situation and most likely they will be able to cut you a deal. I’ve seen landlords work on deferred payments, partial payments, etc.
Here are a few tips on how to approach them:
- Talk to your landlord proactively — If you don’t ask, you don’t receive. Approach your landlord and aim to find a mutually beneficial solution.
- Apply to Relief Programs — There’s federal help, from the CARES ACT (Payroll Protection Program) to SBA Economic Injury Disaster Loans. Speak to your advisors and accountants about your options.
- Read your lease — This is the time to review what your lease says, get familiar with your options and liabilities, and follow step 4.
- Talk to your lawyer in advance — make sure you are aware of any legal liabilities you have and are prepared to address them, so you don’t end up on the wrong end of a lawsuit.
For Landlords
Landlords, this is the time to be objective. There won’t be a one-size-fits-all solution. Some tenants will be able to pay rent, and some won’t, and you have to look at each case individually to tailor solutions that benefit all parties involved.
Here are some tips to help you navigate each scenario:
- Educate your tenants — Direct them to federal programs for solutions. The PPP (Payroll Protection Program) is the best option currently available to most small businesses because of its repayment waivers. The program offers loans of up to $10 million to cover eight weeks of payroll, plus some additional expenses, like rent and utilities. SBA will forgive the loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.
- Look at the numbers — If a Tenant asks for rent relief, ask them to open their books. This will give you the knowledge to craft a solution that fits that specific tenant and property.
- Weed out the opportunistic — Some, but hopefully very few, may want to take advantage of the situation. Maybe they have enough cash to pay rent, or maybe they were already struggling. That’s why you want to look at their numbers.
- Overall, you don’t want your tenants’ signs to go from “Closed” to “For Lease” in a matter of months. This is not only bad for you but also for the market. As a leading commercial real estate company, trust us when we say you want to keep vacancy at a healthy level, so do your best to keep your spaces leased.
