The first of April has come and gone and attention within the real estate industry has become focused on how otherwise reliable tenants will make their scheduled rent payments for the month.
Tenants and landlords across all asset classes are in conversations about structuring some sort of rent relief during this very challenging time.
Those businesses not classified as essential by the governor are closed altogether or battling to stay open with their employees working from home. Other businesses are seeing increased business activity as a result of the crisis and are ramping up operations as they do their best to keep their employees safe.
Amazon has hired over 80,000 workers in recent weeks and other major companies are also hiring in a big way. But most of Orange County’s industrial inventory is occupied by small businesses who lease from private investors, both of whom have a lot at stake as they deal with the economic fallout of the Covid-19 pandemic.
As you might expect, we are fielding calls from both landlords and tenants looking for guidance on how to modify lease agreements to ease the financial burden on tenants without heaping the same onto landlords. So far, we have seen a high level of cooperation between the two, as the reality of the situation makes clear that everyone is in this thing together and the most favorable results are achieved by finding a way to accommodate the needs of everyone involved.
The first thing we do when asked for assistance is to make sure we fully understand the unique circumstances involved. The degree to which a tenant’s business is impaired is critical as is the cash flow needs of the landlord who may have substantial debt on the property that must be serviced. Once that critical information is made clear, we develop a plan designed to minimize the burden on both parties.
In some cases it results in short term rent abatement that is amortized over the remaining term of the lease. In others, monthly rent is reduced to lighten the burden on the tenant while still providing some cash flow to the landlord for servicing debt.
There are a variety of other options to consider, but the point is that the parties are best off working together to avoid negotiations from becoming adversarial.
Legal remedies are essentially unavailable at the moment. So, threats of eviction for the failure to pay rent will be unsuccessful.
But, even though a tenant may have limited access to his leased property, his obligation to pay rent remains intact. It really comes down to when rent gets paid rather than if it gets paid. So, whether you are a landlord or a tenant, this is a good time to recognize the value of the other party to your lease and to understand how a little cooperation can go a long way under these very difficult circumstances.
To explore your options, please give us a call . We are here to help.