The recent announcement of government aid through the Canada Emergency Commercial Rent Assistance (CECRA) program will certainly support both tenants and landlords, but not solve all issues. With the current threshold of a 70% sales reduction to qualify for the government rent program, many tenants will not qualify but still be in desperate need of rental assistance. Jeff Grandfield, commercial lease consultant, provides advice for tenants on next steps below.
Talk to your Landlord or Property Manager
Most large, sophisticated landlords are working with their tenants struggling to the pay rent due to the COVID-19 pandemic and ensuing recession. Landlords are mindful of their need to preserve tenants; it’s very expensive to find and set up new tenants on leases, especially during an economic downturn. From a landlord’s perspective, keeping their existing tenants in business is the better plan even if that means reducing their rent for the time being.
A tenant’s natural inclination may be to reach out to the landlord and ask for rental assistance. A better plan is to contact your property manager, explain that your business is struggling, and ask if your landlord has a rent assistance plan they are rolling out. If your landlord is offering tenants a 20% rent reprieve, and you require 50% off your rent, by taking this approach you are then only negotiating for the additional 30%, on top of the 20% that has already been offered.
It’s important to communicate with your landlord through your property manager early on, and frequently. Tenants who prefer to phone their property manager or send texts will not have their case as well documented as it would be via email. Remember that property managers are being swamped with tenant concerns right now; you not only need to be heard but you need to be remembered.
Know your Options for Rent Assistance
Rent assistance can come in many different disguises. Most landlords will want to offer rent deferral, which only pushes your rent payments to be paid on a later date. Our goal at The Lease Coach is to get tenants rent abatement, which is the forgiveness of rent. Occasionally, we will negotiate a combination of the two (for example, 50% Rent Abatement forgiven, plus 50% Rent Deferral to be paid at the end of the lease term). This way, when negotiating a lease renewal at a later date, we can try to negotiate to abate the accrued rent deferral.
Tenants need to know their numbers, both sales and expenses. Month to month and year to year sales volume comparables are often requested by the landlord. Some landlords will assist a tenant once it is proven that sales are down. However, if you are contacting your landlord without proof of a downturn – or in anticipation of a future downturn in sales – your landlord may ask you to come back when you can prove you need assistance.
“ Landlords will be more likely to help tenants they are confident will survive this downturn”.
If you fear the recession is going to sink your business altogether, do not share this with your landlord. The Lease Coach had a client who was asking their landlord for rent assistance, but in the same breath told their landlord their business would likely go bankrupt in a few months anyway. We then had to reframe the message, because landlords won’t be willing to resuscitate terminal tenants.
How long should your rent assistance plan continue? One month will not be enough; hopefully 3 to 18 months of rent assistance will be all you need, but each tenant’s situation will be different. Occasionally, the rent reduction will be tied to your actual sales, or the initial 6 months will have the greatest rent discount and the following months will see a reduced discount as sales begin to climb back to normal. You want to avoid leaving a lot of rent money on the table, so anticipate several rounds of negotiation.
What to do About Your Upcoming Payments
As a tenant, you should never stop or miss paying a month’s rent altogether. If your next month’s rent is due in a few days and you haven’t yet come to an agreement that works for you and your landlord, they may or may not respond within that short period of time. Sometimes tenants will be forced to make a rent reduction by making a rent payment reduced by up to 30%-70%. Short payments can signal to your landlord that you are in serious need of support. You should always properly document these conversations to avoid putting yourself into default by withholding rent; there is a method and strategy that The Lease Coach uses in our communication with landlords that has proven successful. You can learn more about this by contacting the Lease Coach at 1-800-738-9202, e-mail [email protected]
If your lease term is going to expire in the next 18 months, that renewal negotiation should be factored into your overall tenant strategy. Be careful not to exercise your renewal option without careful consideration; most renewal options contain an automatic pre-set rent increase or market rent adjustment, which often results in an increase in rent.
If you have more questions about navigating your commercial lease in these times of uncertainty, tune in to Business Link’s upcoming webinar: Commercial Leasing During Uncertainty, hosted by Jeff Grandfield, on May 14th.