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Date ArticleType
4/27/2020 General
Commercial Rent Relief

COVID-19 Commercial Rent Relief: Something for Nothing?

“Can I get rent relief from my commercial landlord because COVID-19 has impacted my business?”

This may be the question that I have fielded most frequently since this entire episode began two months ago. My response is a bit involved, but the short version is:  It depends.  Every situation is different.

Many factors determine if a commercial landlord will grant any rent relief to a tenant. First, this consideration is entirely subjective between a particular landlord (and their lender) & the tenant. Second, it is important to recognize the distinction between businesses such as retailers and restaurants that can no longer conduct business vs. office–based businesses that continue to conduct business, albeit remotely from home computers.  Third, if it is determined that a landlord will grant its tenant some relief, it is likely that they will not get something for nothing – as commercial landlords are profit-based businesses with accountability to others & are not altruistic.  I have rarely seen Global Pandemic in Force Majeure or other lease clauses, so business solutions are being crafted on a case-by-case basis. One may also refer to their insurance policy for potential relief. This article; however, will focus solely on landlord-tenant business solutions.

Based on my experiences over recent weeks, when a commercial tenant has appealed to their landlord either directly or through me – or counsel, the response has ranged from apprehensive to encouraging, with the exception of one notorious landlord that didn’t want to even hear about it for another 30 days. Generally, landlords typically have loan documents with proforma rent & requirements to which they must adhere - and any changes to the lease or revenue must comport with those terms or be approved by the powers that be.  In these cases, to underwrite each request subjectively, landlords & especially their lenders, need a paper trail accounting of not only the request for relief, but also records of the tenant’s revenue before & after the disruption of business, evidence of applications for any government loans or grants, proof of executive pay cuts & other cost-cutting measures, a plan as to how they will weather this delay of business and be successful on the other side to fulfill the balance of their lease obligations - as well as repay any deferred rent, etc.  These extensive requirements by landlords discourage some tenants from continuing their appeal for relief. As such, some tenants just get back to business & do the best that they can under the circumstances – despite reduced revenue.

Many retail businesses such as boutiques, dry cleaners, salons & restaurants have either closed entirely, or their business has been severely reduced by the absence of regular commerce. Clerks, servers & small business owners’ incomes have been clobbered by this awful, lethal virus’ indirect effects.  Office-based businesses; however, have not all been as dramatically impacted.  Impacted?  Yes – but not as completely as retailers.  Many of my office-based clients have adopted or expanded the use of remote-work telecom technologies such as Zoom & Microsoft Teams, and have been able to conduct some or much of their work – albeit not in the office or per their typical travel schedules.  It is certainly not as easy or productive for this category of workers & professionals to conduct their business, but for many it has continued to a certain degree – unlike many retailers & dine-in restaurants.

In terms of rent relief results, the landlords that would listen & try to help their tenants have been granting 50-100% of Base Rent abatement for 1-3 months.  In many cases, they did not waive it – they simply shifted this Rent obligation to the end of the term – either with additional months, spread out over the final year, or by a long-term extension of lease with the Abatement up-front.  In most cases, landlords are trying to have their cake (later) and eat it too.  If the business that appeals to its landlord for rent relief is viable in the landlord’s estimation, then expect that landlord to try and benefit as much as possible later for helping their tenant now.

If you have any follow-up questions, please call or email anytime. No obligations.

by Jason Stagman, CCIM
Stagman Commercial Real Estate Advisors/ITRA Global
JTS@StagmanCom.com  561-376-5100