Lease Negotiations: What You Need to Look for in Times of Distress

The unsettled business environment precipitated by the spread of the COVID-19 virus has no certain endpoint. Until the time for a return to normalcy, it is important for businesses to mitigate their losses as much as possible to remain viable or at least stay in the game. Commercial real estate is among the sectors hit hard, and almost all commercial tenants have had to shut their doors or have seen a dramatic fall-off in revenue. Although landlords are often at the mercy of what relief they can get from lenders with no miracle solutions, landlords and tenants may be able to work together to craft a short-term remedy by re-negotiating certain terms of their lease in an effort to weather the storm.

Penalty relief

Almost all commercial leases contain provisions that impose monetary penalties for failing to comply with payment obligations. Items such as late fees and interest on back payment owed can be abated, reduced or waived if the parties can so agree. The extent of the relief the landlord is willing to accept often depends on how “clean” the tenancy has been. If the tenant has never been late or fallen behind heretofore, the landlord is likely to be more motivated to work with that tenant.

Amortization of rent owed

To the extent it is possible for the landlord to work with the tenant during the economic shutdown, monies owed need to be paid. One way is to apportion the total owed over the number of months remaining in the lease. Or, perhaps, once the business is up and running again, the amount in arrears can be paid in months where gross revenues exceed an agreed upon threshold.

Lease termination

If there is no realistic path to regain viability, it can be in both parties’ interest to negotiate a lease termination. Currently, the courts are not even hearing evictions, and a long, protracted legal battle isn’t likely to benefit anyone.

Understand the landlord is under duress, as well

Many landlords are operating on slim margins, and cannot withstand a protracted period without a “paycheck,” which is the monthly rent from the tenant. This is especially true for landlords who have non-residential loans. Landlords who have opted for residential loans to finance the purchase of their property may qualify for some form of mortgage relief.

Primior can help create a dialogue between tenant and landlord to see if a remedy can be crafted that has benefits for both. Contact us today to see what options may exist for your situation.

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