Should you pay rent during a crisis? Should you stop paying rent? And how should landlords manage rent payments during a global crisis?

Over the past few days, the hottest topic has been how to handle rent when a tenant’s business is affected by crises like COVID-19. Many landlords, tenants, and property managers are already considering how to handle the next rent cycle.

We recently discussed whether it’s time to sublease. Tenants have been asking brokers for help in subleasing their space due to business losses. In this article, we’ll cover both tenant and landlord perspectives to help you navigate this challenging time. We encourage both tenants and landlords to read through as there are overlapping ideas.


What to Do as a Tenant

Be Honest

Over the past decade, many tenants have asked for rent reductions or concessions, even without real need. This has made landlords skeptical of requests. Now is the time to be honest. If you don’t need a concession, don’t ask for one. Honesty can help repair damaged landlord-tenant relationships.

Be Prepared

If you do need a concession, come prepared. Provide your 2019 and 2020 year-to-date sales reports. If you own the business independently, share your personal financial statements. Landlords will appreciate transparency. Even if your sales are down, having cash or assets doesn’t automatically disqualify you from getting help. Sharing all relevant information can earn goodwill.

Full Disclosure

Be open about your situation. Is your business fully closed? Was it by choice or by mandate? If partially open, what are you doing to mitigate losses? Explain how a rent concession will help. The more forthcoming you are, the better the chances of finding a workable solution.

Know Your Obligations

Remember, you signed a contract that obligates you to pay rent, whether your business succeeds or struggles. Explore creative solutions. For example, you could request a rent reduction for a few months and extend your lease term. You might also waive certain rights in exchange for relief. A lease has many provisions that can be negotiated beyond just rent.


What to Do as a Landlord

Listen to the Tenant

In normal times, tenants should pay rent or leave. But in a crisis, things are different. Many small business owners are doing everything they can to stay afloat, and some quality corporate tenants are facing cash flow issues. Be open to understanding their situation.

Request Information

Ask for monthly sales reports from 2019 and 2020. Request personal financial statements if appropriate. Have the tenant describe the current status of their business and what it would take to return to normal. Some may bounce back quickly, while others may need more time.

Ask for an Offer

Let tenants explain what they need. Is it free rent (abatement), discounted rent (concession), or deferred rent (loan)? Letting them propose solutions gives you a better understanding of what’s feasible.

Communicate Quickly

Even if you need time to think about the proposal, respond quickly. This is a stressful time, and delays in communication can cause tenants to close or move resources elsewhere.

Make a Deal

If you’re offering a concession, ask for something in return. For example, make the concession conditional on the tenant staying for the rest of their lease. You might also gain the right to terminate the lease if a new tenant comes along. Make sure any agreement is written down, and prevent the tenant from discussing their deal with others in the building.


Additional Considerations for Both Tenants and Landlords

Insurance

Check with a knowledgeable advisor about property or liability insurance. Most policies exclude losses caused by viruses or communicable diseases, but it’s important to know where you stand.

Federal Programs

There may be federal or state programs that can help both tenants and landlords. The Small Business Administration’s website offers guidance on available federal programs. Learn more here.

Advocate

Approaching a landlord or tenant can feel intimidating. Let us be your advisors and advocates. We aim to create win-win scenarios for everyone. By acting as a buffer, we help you maintain positive relationships moving forward.


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Meet The LeveragedCRE Investment Team

Phill Tomlinson and Eric Butler are seasoned commercial real estate brokers with over 44 years of combined experience. They lead the LeveragedCRE Investment Team at Commercial Properties, Inc. (CPI) in Scottsdale, Arizona, specializing in investment sales and tenant/landlord representation across the Phoenix and Scottsdale submarkets.

The team leverages their extensive knowledge and expertise to help investors and property owners maximize their returns and navigate complex real estate transactions with confidence.

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