The Coronavirus pandemic has hurt a lot of retailers financially, making it difficult, if not impossible to pay their rent. Typically when tenant cannot pay their rent, the landlord will replace them with someone who can—but these are not typical times. Landlords know the middle of a pandemic isn’t the best time to try to find a new tenant—they are better off keeping their tenants in place in hopes that their fortunes turn sooner than later.
“Landlords don’t want to lose tenants,” Steven Solomon, a managing shareholder at the law firm of Gray Robinson told Globe St. “They’re not anticipating this to be a good time to replace tenants. The landlord is now saying this is not a tenant that runs a poorly managed business. The landlord understands why their tenants are not paying rent.”
Landlords work out deals with tenants that can’t pay rent
Rather than replace their tenants landlords are looking for creative solutions for when their tenants cannot pay, Globe St. reports. The negotiations can vary by client. Some deals include temporary pause in rent payments, reduced rents with the rest being deferred or adding more rent over the life of the lease. Tenants have an easier time staying open and generating cash flow when they can spread out their payments or pay a reduced rate temporarily, according to Solomon.
“Let’s say the rent was not paid for April or May,” he said. “They’re taking that amount and adding it in some increment that is palatable over the rest of the lease.”
Meanwhile, landlords who own operating businesses along with real estate might lease space to several tenants that are in the same industry. For example, a warehouse landlord might also offer shipping and delivery services. Meanwhile, there are fixed base operators in the aviation industry that lease hangar and office space and airports as well as sell fuel and offer repair and maintenance services—leaving room for additional negotiations.
“Certain types of landlords have been able to be a little bit more creative by saying, ‘Okay, we’ll agree to a deferral of one, two or three months or a discount we can make up on the back end,’” Solomon told Globe St. “But in exchange, the tenant will be required to purchase particular value added services or goods from (the landlord) exclusively or subject to a certain monthly minimum. This allows the landlord to provide a rent concession, while making it up on the ancillary services or good sold.’”