Valuable Leasing Strategies in the COVID-19 World – Part 2

Today’s strategic advice is for existing tenants; i.e., those who have been in a leased space for more than 6 months and have at least a year left on their current lease term.

Established Tenants

I have already heard from existing clients seeking advice regarding what to do about paying rent. I can see two primary concerns for tenants, and each has a different suggested solution. One potential issue will be for tenants whose incoming revenue is immediately and materially impacted by the response to the virus. The first business that comes to mind is a restaurant. They have been mandated to stop sit-down service, which will cut their daily receipts dramatically. A second type of existing tenant is one whose daily revenues will not be materially impacted by the virus response. A good example might be a financial advisor who is paid a percentage of assets under management and will continue to generate revenues.

If your business relies on daily revenues to pay bills and your revenue source has been compromised, my suggestion would be to reach out to your landlord, explain your challenge, and ask them if you can get short term rent relief. If you have always paid your bills, they don’t want to lose you. To make your request fair and balanced, think about offering to cover operating expenses (which they still have to pay) or keep track of the concessions and pay them back over time.

If you operate a business that still continues to receive regular revenues, you may be concerned that your contractual rent may soon be much higher than the market. A successful strategy from past recessions is to “blend and extend,” whereby you negotiate a lower contractual rental rate in exchange for a longer (extended) lease term. I personally would suggest waiting a month or two to approach the landlord on this, as I believe it will be at least a couple months before we understand just how deep and long this recession might be.

Next Up – what to do if you just signed a lease