In this time of disruption, many Landlords are finding themselves in the difficult position of fielding tenant relief requests. Whether you deal with small mom and pop businesses or national corporate tenants, government mandated closures and a drop in sales volume due to social distancing have a number of businesses trying to prepare for an unpredictable future. As a Landlord, you’re also exposed to the uncertainty of today’s economic environment – so how do you accommodate tenants with good history who are looking for short term relief on expenses.
Determine Who Truly Needs The Help
It is important to remember that tenants are Landlord’s business partners, not adversaries. In an attempt to apply the golden rule, it’s important to determine who truly needs assistance and who is simply trying to take advantage of the current situation. We had the opportunity to attend retail leasing powerhouse Beth Azor’s recent webinar regarding Tenant Rent Relief and were provided with a very thorough RENT ASSESSMENT APPLICATION which we are proud to share with our valued clients.
By using a rent assessment application like the one provided or tailored to your custom needs, you can identify which tenants have reached out to other assistance programs in your state and gather important financial documentation to help determine what level of relief, if any, can be granted. It’s suggested to hold strong to the following guidelines:
- Tenant MUST NOT be in default
- Assess whether or not Tenant is doing their best to find creative ways to stay open/maintain sales
- Smaller businesses should take priority for relief over national tenants
- Franchisee’s should contact their Franchisor for assistance before requesting relief from Landlord
What Does Relief Look Like And How Long Does It Last?
The COVID-19 situation is changing almost hourly, so it’s important for a Landlord to be gracious and sensitive while protecting themselves at the same time. Many management companies and Landlords are delaying the delivery of April’s rent statements if they primarily manage small businesses to monitor how this situation is evolving each day:
- Keep discussions of relief limited to April of 2020 only for the time being: Some Tenants are asking for 90 days of rent abatement – we suggest sticking to 30 days, possibly 60 days at most, until owners know more
- Negotiate in terms of rent DEFERRAL and NOT WAIVING RENT altogether: There are a number of ways you can work out rent deferral with a Tenant – one idea would be to defer rent for April 2020 to the last six month’s of the Tenant’s lease (i.e. if monthly rent is $6,000 Tenant pays an additional $1,000/month for last 6 months of their lease term)
- As a proactive Landlord, can you scale down on maintenance cost for yourself or your Tenant?: If you have retail/restaurant tenants who have been forced to close, can you scale back or eliminate trash service for the month? Limit landscaping or suspend HVAC or other maintenance contracts while the Premises is not in use? Evaluating these items could help with a cost freeze for both you and your tenants.
Be Proactive And Keep Records
It’s likely we’ll see new language added in many leases to address a pandemic situation such as COVID-19 once the dust settles. For now, there are ways to assist your tenants, and therefore your investment, as we all navigate the months ahead:
- Document ALL relief/adjustments in writing with a confidentiality clause
- Inquire with your lender and attorney if a security deposit can be used in place of April rent, with Tenant to repay deposit over time in the future
- Inquire with your lender if you can move your existing note on the property to an interest only loan
- If a rent relief application comes in from a Tenant, try and respond within 24 hours to avoid multiple vacancies
We are optimistic that many of our local businesses will be able to re-open sooner than later, but having an action plan in place for mitigating risk can help you get through this economic pause while maintaining a positive working relationship with your tenants. Keeping an open mind, being proactive, encouraging creativity with your tenants (which could include additional signage to let passers by know they are open) are all ways to approach the coming weeks with flexibility and thoughtfulness. Sterling CRE Advisors is here if you have questions regarding your existing asset(s) – please reach out to one of our advisors with questions, concerns, or comments. We wish you and your family health and safety as we move into the spring season.