If you are a landlord or a tenant (commercial or residential), you’ve likely considered the risks inherent to your participation in the market. Whether it’s a global pandemic, a natural disaster, a market crash or otherwise, most folks have a contingency plan in place to make sure the other side of a disaster can be something you reach with some degree of confidence. We can’t control for everything, but we can plan for the worst and manage options when the time comes. In highly disruptive events like the COVID-19 pandemic, sometimes a little negotiation is needed to make sure all parties land on their feet. In a residential or commercial lease, the lease and the experience of both the landlord and tenant are only as good as the sum of the parts. In other words, if either the landlord OR the tenant is unreasonable, both parties will likely suffer somewhere along the line. If both parties are quality individuals with mutual best interests in mind, a reasonable outcome can be achieved in many cases.
For building owners/landlords: Tough economic times sometimes leave you in a position where you have to make a difficult decision. If a tenant is likely to face a massive contraction in their revenue due to unforeseen circumstances, consider the long term benefits of making some adjustments to their lease so they can get back to work without too heavy a burden, and can remain a great tenant in the long term. Being willing to work with a tenant can ensure you aren’t needing to find a new tenant during tough economic times, which can cost more in the long run.
For tenants: It is important to understand that landlords are in business too, and they typically have costs associated with owning and maintaining your building or space. Some landlords have very low overhead costs, but some break even or take a loss on your lease. Proceeding with negotiations with an understanding of and empathy for their situation is important to presenting them with a fair and reasonable solution. Be sure you can readily justify your request with documentation and supporting details. Below are some options to consider for renegotiating the terms of your lease, either in the short term or long term. Formulate your reasoning in a thoughtful letter or email and make yourself available to support your argument in a nonthreatening and non-desperate way:
- Temporary rent reduction–define the amount of time you’ll need to get back on your feet
- Rent abatement during crisis–define how the crisis has impacted your business and your plan to recover
- Long term rent reduction–define how the current rent isn’t going to work, but illustrate the long term benefits your business could bring to the relationship and opportunities for growth
- Rent reduction that can be paid back at a later date or during recovery or peak business operating times–define how the short term pain of the situation can be resolved through a little give and take