Council Post: In Real Estate? Here Are Tips To Manage Rent During The Pandemic

As the managing member of a law firm that specializes in business and real estate, I’ve been contacted by numerous clients discussing issues with their landlords about trying to receive rent concessions due to the coronavirus. In this article, I will outline tips for both renters and landlords for how to address this crisis. These tips are especially important to people in commercial real estate and those renting.

I’ve been in discussions with these landlords by way of written correspondence as well as teleconference. Some of these landlords have requested evidence that my clients have submitted applications for the Paycheck Protection Program so that they know my client will at some point be able to repay them. I’ve written to these landlords and explained to them that, unfortunately, the program, up until recently, was out of money.

But as of now, Congress passed a $484 billion package to resupply the PPP with additional funds to pay out to both small businesses and hospitals. These additional funds are meant for those who put in an application for the original PPP program but did not receive funds.

How does this affect both landlords and tenants?

The real issue I’m observing is that my clients are seeking assistance even though rent concessions don’t necessarily solve the whole problem. On one hand, tenants need the assistance, so they have contacted me and are asking for help because their landlords haven’t yet consented to rental concessions (at least those from whom we have requested concessions). On the other hand, there are landlords who have come to me asking how to deal with this problem because they have bills they currently have to pay.

I’m also seeing challenges on the tenant side related to available funding. We’re not sure whether tenants are potentially receiving the funding they’re eligible for from assistance programs.

What are some ways tenants and landlords can work around cash flow challenges?

It’s possible that some tenants will be able to continue to work during the day and pay their bills. It’s also possible that landlords can grant some sort of forbearance at the moment, but not necessarily full deferment. For example, if someone can’t pay their full rent for a month, their landlord could come up with an alternative agreement with their tenant, such as having them pay half their rent at the first of the month, and the second half could be paid at the end of the lease. Once the outbreak subsides, they could chop those additional payments up into three installments over a certain period of time (or whatever serves both parties best).

However, conversations also need to be had for the tenants who don’t have cash flow at the moment to pay their landlords. Some states are protecting commercial renters from evictions, so they’re able to stay in place. That said, I am also working with clients on negotiating deferrals of rent.

For example, say a tenant has to pay $30,000 for a month. They can talk to their landlord about deferring rent to pay it all back in a lump sum at the end of the year or the end of their rental term. Or they can offer something else to the landlord, such as space (e.g., if a landlord wanted 2,500 square feet of a 10,000-square-foot space). As a tenant, ensure you’re looking at your current lease. Those provisions might allow for more time or flexibility that you can leverage when discussing repayment options with your landlord.

Adding to the complexity of finding a solution is when landlords, as a result of tenants being unable to pay rent, are struggling to pay creditors, trash collectors, maintenance crews, landscapers, etc. For the property, there are utility bills and vendors that have to be paid, so if there isn’t cash flow, there’s a problem.

As a result, there is a significant amount of conversation going on about who will provide forbearance, for how long and at what point will that burden end? And what are the terms of the forbearance? No one knows how long the pandemic will remain, so it’s important for all parties to have these conversations and settle on terms of forbearance. Put that forbearance into a written agreement so that once the outbreak ends, everyone knows exactly how the new payment terms are going to work.

If tenants and landlords have stopped paying, all creditors need to keep records showing exactly when payments have stopped so that once a forbearance agreement has been drafted, those records can be reviewed and the proper terms can be stated.

Furthermore, some tenants might not even be in business once this is over. That’s another significant risk landlords are taking. We’re starting to see bankruptcy concerns throughout the retail industry already, including Neiman Marcus, J.C. Penney and others. So, mall operators, office landlords and even owners of mom-and-pop centers are rightfully concerned as well.

As you can see, these are challenging times for everyone. These are the problems I’ve been negotiating through with landlords and tenants, and these are the conversations I continue to have and provide advice on during this period of uncertainty. Consider the options I’ve outlined above as you find the solution that works best for you.

The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.

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