Mutual Aid Society: Landlords and Tenants Are in this Together During Covid-19
The world has changed… and we are all facing uncertain times in our lives and our businesses. Landlords and tenants alike are trying to figure out how to get through these uncharted waters.
As landlords, we are negotiators and we are collectors. In general, we are not prepared to deal with widespread rent relief requests. In most cases, the tenant has been forced to close their business because of state and local mandates. Tenants are forced to furlough their employees, and revenue is virtually cut off. Landlords are faced with rising vacancy rates and downward pressure on rent relief from tenants.
As tenants, we believe we are valuable… Recently, I did a comparison for a client where we compared an existing tenant to a new tenant over a 5-year period. Based on an assumption of a 2,000-sq.ft. space at $30/sq.ft., the existing tenant would generate a profit of approximately $110,000 in the first 2 years and $275,000 over 5 years — while the cost of a new tenant after downtime for build-out and landlord improvement costs, would net a loss of $36,000 in the first 2 years and generate a profit of approximately $144,000 over 5 years.
What should a tenant ask for?
What is reasonable? Before I make any suggestions, I would share this with you:
Most of my tenant clients have requested 3 months of rent relief, either in abatement or deferral. If you are able to secure an abatement, that would allow you time to reopen and ramp up again with no pressure on rental payments. If you are able to get a deferral, I would ask that payments get spread over the balance of the lease term, affording you ample time to repay the deferred amount. Be sure to remind the landlord that you are confident you will get through this if they can assist, and you look forward to rebuilding your business.
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