Based on conversations Brandon Buchanan – Buchanan Realty Group – has had with landlords and tenants, he wanted to share some thoughts with NEWS/TALK 101.5 FM & WNWS.COM concerning rents and Landlord/Tenant relations.
“Since we work with both, I wanted to share the perspective of each,” Buchanan said, “However, I’m not an attorney or an accountant, and I would advise consulting with one prior to signing any lease amendments or loan agreement.
“It is important to recognize we are all in this together. Landlord and Tenants are intertwined and success for one is success for the other. My hope is we can work together as fairly possible.”
What to Do as a Tenant
Communicate – make sure to communicate with your Landlord, contact them and let them know how you have been effected ( government shut down, limited hours, etc…) I can’t tell you how important and appreciated this is.
Know Your Obligations – recognize you signed a lease and that is a binding contract. Know the details of the Lease such as rents, when it expires, force majeure (a supervening event which prevents performance of the contract)
Fully Disclose – let the Landlord know the facts. Examples this is what March of 2019 sales were this is what March 2020 looks like. Share your financial statement. Tell the entire story of your situation.
Present options – If you can’t meet your obligations. Consider what could work for you, can you pay 50% rent? Should you propose zero rent for a short period of time and to catch up later or extend Lease. Catch up after Cares Act SBA Loan.
Cost – can you defer any loan payments or pay interest only. What other expenses can be cut out.
Insurance – review your policy, does business interruption cover you? If your not sure, send to an attorney or communicate with your insurance agent in writing.
Federal programs – Apply for a SBA disaster relief loan or Paycheck Protection loan. The Federal Government has appropriated money for businesses. The disaster relief loan process can be completed online and is offered at very low interest rates and short and long term amortizations. The Paycheck Protection Loan has to be through an SBA Lender, check with you bank & CPA.
What to Do as a Landlord
Listen to the Tenant — Generally speaking, Buchanan believes a tenant should pay their rent or leave – but these are different times and we all have to try and work together. Find out what they need.
Ask for Information — Request 2019 and 2020 monthly sales reports, personal financial statements (if appropriate) and a written description of the status of their business including what they foresee is required to return to normal. Did they file with insurance or SBA.
Request an Offer from the Tenant — Let the tenant tell you what they really need. Is it rent abatement (free rent), a rent concession (discounted rent) or rent deferral (effectively a loan)?
Make a Deal – Buchanan suggests avoiding giving away anything if possible. If you are going to make a concession, there should be a tradeoff. Here are some approaches you might take:
1. If you are going to abate the rent or make a rent concession make it contingent upon the tenant fulfilling the balance of their lease term without default.
2. In certain circumstances, it might make sense to obtain the right to terminate the tenant’s lease. Make an agreement to allow the tenant a 50 percent rent discount but you have the right to terminate the lease if you find another user to take their space. This would not be a mutual termination. Only the landlord would have this right. For tenants who could easily relocate to another space if you terminated (i.e. furniture, clothing), this could be a win-win. (source shopping center news)
3. Defer the rent currently and add it to an extended term.
4. Avoid an agreement that goes too long, but also one that goes too short. It seems pretty obvious that this is not just going to be an April rent problem. It could easily be four to six months, or longer.
So instead of going through this dance repeatedly, make a deal that at least covers the next few months so that everyone, including yourself, can plan accordingly.
Insurance – review your policy, does business interruption cover you? If your not sure, send to an attorney or communicate with your insurance agent in writing. Ask your Tenant if they have received proceeds and who their carrier is.
Cost – what cost can you cut out in the short term (dumpster service quantities, utilities, etc…) Go to your Lender, can you get interest only or deferred payments to help cashflow.
Government Funds – educate yourself on the terms of the Cares Act that was passed last week. Work with your CPA. This allows Tenants to borrow money through SBA lenders, with forgiveness of the loan amount based upon the Tenant paying payroll, rents, utilities, … Make an agreement with the Tenant that includes reimbursement of any back rents if money is received by them from SBA.
(PHOTO: Brandon Buchanan, Buchanan Realty Group)
David Thomas, Twitter – @DavidThomasWNWS
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