We are all feeling the economic effects of COVID-19 and having to shift gears to properly adapt. If your business is amongst the many being ordered closed for the time being, then you’re likely wondering about, if not stressing over, what this means from a leasing perspective. Real Strategy Advisors understands these concerns and we’ve prepared the following guide for negotiating rent relief on a new or existing commercial real estate lease.
1. More power than you think
Things seem dour when money is tight but you have more power than you think. Since the courts are closed, and any prospective tenants are self-isolating, no landlord should be looking to go through the tenant eviction process at this time. Since the likelihood of finding a replacement tenant is quite small, it’s better for them to stick with you! This means that tenants have more negotiating leverage than they might believe. Remember that the landlord is essentially an investor in your business. It’s in their best interest that your business remain healthy so you can pay rent in the future, if not at the moment. So don’t be afraid to ask for relief, but be prepared to show evidence of economic hardship to justify your request.
2. It’s all about the mortgage
The single most important variable in this discussion on rent deferral options and flexibility is the property owner’s relationship with their bank. A landlord’s ability to finance rent abatement or deferral typically requires an agreement being reached with the bank on how mortgage payments will be treated in the immediate future. Until such an agreement has been reached, it’s difficult for your landlord to easily commit to a relief package where they incur all risk. That said, with the announcements from various levels of government on relief measures that are rolling out to help Canadians, assistance should make its way to the tenants as well. The earlier you start the conversation with your landlord, the better they will be able to manage your request.
3. Shorter may be better
Economic conditions as a result of the COVID-19 outbreak seem to be changing with each passing day. Given the lack of clarity, it may be difficult to make any long term real estate commitments for your business at this time. Until we have a better picture of how this crisis will unfold in the long run, Real Strategy Advisors suggests that negotiating short-term lease extensions may be necessary in order to buy some time to better assess how your business will recover when economic conditions return to normal.
Give us a call if you’re looking for help on how best to position your business with your landlord during the COVID-19 outbreak. Real Strategy Advisors understands your situation, resulting concerns, and can provide professional advice to help make this uncertain time a little more straight forward.