Tenant/Landlord Relationship: How to Talk About Commercial Rent In Light of Covid-19

Step 1: Prepare

Do these things before you communicate with your landlord.

A. Read your lease

Read the lease you were provided by your landlord or ask your landlord for a copy if you cannot find it.

When reading the lease, you will likely not find any language specific to this unprecedented situation.  You may, however, have the opportunity to isolate sections of the lease you could find pertinent to your situation in the coming months.

B. Document your financial position

Present a cash flow statement, P&L, or simply a letter or other document demonstrating impact of the Covid-19 pandemic on your business.  State whether you are open or closed. If open, state the changes to your sales that are a result of the pandemic.

Be sure whatever document you present reflects all pertinent Covid-19 related developments, for example, that sales tax due date was extended or you’ve applied for a business loan.  Don’t forget any duplication of or increase in costs (internet service upgrade, supplies to ship products being sold online, etc.)

Step 2: Talk to Your Landlord

Prepare a thorough but not overly formal email proposing how much rent abatement you are requesting.  If you speak by phone, take notes or record the conversation with your landlord’s consent (also recorded), then send an email stating what you propose.

Step 3: Make a Positive Contribution

Base the negotiation with your landlord on what you know now, even if you think circumstances may change and loan funds become available. This is the first of likely many steps you will make in continuing to maintain a positive relationship with your landlord.

While you are not obligated to explain the details of your business operations, you must consider that you have information about your business that your landlord does not know--just as your landlord’s full financial situation is unknown to you. 

This is where providing your own financial document(s) which demonstrate the pandemic’s impact on your business is essential.  

    • Share/demonstrate current impact: i.e.: we have been forced to close/limit operations. Sales have dropped X%. 

    • Share tentative plans/ strategies you’re going to use to attempt to pay rent, such as applying for SBA loans, looking for assistance from distributors, etc. 

    • In order to provide evidence, be prepared to provide P&L statement, # of employees, cash flow statement

Step 4: Create a Plan of Action

Consider the following when creating your proposed plan of action:

  • Try to keep your rent payment plan simple, providing your landlord an expectation of how you will pay rent for the next 1-2 months.  With as much uncertainty as the pandemic has brought, you want to limit the amount of substantial change your business is tolerating at this time.

  • Security deposits are often prohibited in lease language from being applied to rent, but under the current highly unusual conditions, proposing that your security deposit--in whole or in part--be applied toward rent is considered reasonable.

  • Request weekly check-in meetings by phone that help your landlord understand changes taking place at your business.

  • If you are prepared for your business to tolerate substantial change, consider some of the following that could be right for you in these usual circumstances: extending the lease term; repaying rent that you defer now in addition to base rent over a set course of time; proposing a downstream rent increase.

The above are a set of recommendations and do not represent a directive of any kind.  Each situation between the commercial tenant and landlord is unique and negotiation should be handled on a case-by-case basis.  If you feel you are being treated unfairly, seek assistance from legal counsel or a law clinic.

This document is provided in collaboration with StayLocal’s partners supporting local businesses, and reflects the efforts of small business tenants, landlords, property managers and lenders to contribute to an important discussion.

StayLocal hosted a presentation describing the current commercial rent market, lease negotiation and energy savings for businesses in 2020. See the slide deck here.