Real Estate
MUTUAL AID SOCIETY
Landlords and Tenants Are in this Together During Covid-19 Written By ROCCO FIORENTINO
T
he world has changed… and we are all facing uncertain times in our lives and our businesses. Landlords and tenants alike are trying to figure out how to get through these uncharted waters. As landlords, we are negotiators and we are collectors. In general, we are not prepared to deal with widespread rent relief requests. In most cases, the tenant has been forced to close their business because of state and local mandates. Tenants are forced to furlough their employees, and revenue is virtually cut off. Landlords are faced with rising vacancy rates and downward pressure on rent relief from tenants. Landlords need long-term leases from reliable tenants. As tenants, we believe we are valuable… and we are! Recently, I did a comparison for a client where we compared an existing tenant to a new tenant over a 5-year period. Based on an assumption of a 2,000-sq.ft. space at $30/sq.ft., the existing tenant would generate a profit of approximately $110,000 in the first 2 years and $275,000 over 5 years – while the cost of a new tenant after downtime for build-out and landlord improvement costs, would net a loss of $36,000 in the first 2 years and generate a profit of approximately $144,000 over 5 years.
secure an abatement, that would allow you time to reopen and ramp up again with no pressure on rental payments. If you are able to get a deferral, I would ask that payments get spread over the balance of the lease term, affording you ample time to repay the deferred amount. Be sure to remind the landlord that you are confident you will get through this if they can assist, and you look forward to rebuilding your business. Another option is to consider using some or all of your security deposit during these tough times. If you have been a model tenant, the landlord should be comfortable with having you use your security. This is your money, so please realize the landlord is not giving up anything and is getting paid in full. At the end of the day, try to get a reasonable relief agreement with your landlord. Do not give your landlord attitude or shut down the conversation. Please try to stay away from discussions regarding a long-term lease extension. No one knows just yet what the market will look like when this is over. The market may be 10% lower and more space available in many areas. Stay focused on the next 90 days.
WHAT SHOULD A TENANT ASK FOR? What is reasonable? Before I make any suggestions, I would share this with you: The way you ask is more important than what you are asking for.
Of course the landlord will say that federal funds are available, you should submit your application, and then you can pay your rent. Although this may be true, if you have applied I am sure you realize it may take up to 4 to 6 weeks to get funded, if not longer.
Most of my tenant clients have requested 3 months of rent relief, either in abatement or deferral. If you are able to
Of course the landlord will ask if you have business interruption insurance. Most policies exclude epidemics, etc.
FRANCHISEUpdate
ISSUE 2, 2020
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