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 Rent has become the dominate issue facing small businesses during the pandemic.

 

Most small companies are facing pressure in a wide variety of expenses. But none are as big a line item or have the same impact as rent.   When analyzing the issue of rent there are many aspects to consider in these interesting times.  Pre-COVID, because landlords were in a stronger market position pre-COVID, there were fewer allowances or renegotiations prompting many companies to  just walk away and break the lease.    Now, given the pending landlord  rent crisis due to COVID,  the position of the business owner is stronger. 

 

There are still major challenges that need to be addressed, such as businesses wondering how they will pay months of  past due rent, accumulated while their doors have been shut. This is a legitimate concern as eviction moratoriums will expire  and such moratoriums do not address back rent, fees or other financial concerns.  Tenants and landlords need to find a mutually beneficial way out.

The relationship between tenants and landlords has definitely become more  strained because of the pandemic.  Big tenants are starting to push back. Some are withholding large amounts of rent in marquee properties as part of their dispute with landlords. Many landlords have started to offer several months of free rent and cash for property improvements in an attempt to keep their tenants.  Creativity is now the key to survival for both landlords and tenants.  Landlords are not familiar with the less dominate negotiation position.

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Generally, they  traditionally have been  quite aggressive. Landlords have had to adapt and have a change of attitude.  A majority of them are still getting their heads around this new reality and floundering in their new weaker roles.  Formerly, many landlords were quite adamant that they would prefer an empty site where then they could charge whatever rent they wanted, to a new tenant.  Instead of providing a discount to the current tenant. But that attitude has dramatically changed in all but the highest profile of properties.

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The willingness to be flexible is not universal but changes are becoming available slowly, especially for small businesses. Landlords are trying to find new ways to restructure leases.  Looking to switch the tenant to a smaller site or negotiations to reduce rent. Losing the tenant is what they do not want to have happen as replacement tenants, especially in the hospitality space  are very hard to come by. One change is the concept of percentage rents, which vary but can include a company’s paying a base rent lower than market rates and topping that with a percentage of gross income.  Many landlords are now introducing new leasing systems with more flexible agreements, rents revised at cheaper levels and a new rent review system.

 

For big companies paying rent at numerous properties, insolvency agreements have become an increasingly common way to shut down sites and cut rent. A company voluntary arrangement allows a business’s directors to stay in charge as they restructure the company’s debts. It can be a useful tool for a company that has a path back to profitability.

 

 In dealing with your Landlord one needs to consider the effort and expense in making your business site a recognized or functional space for your business.  This identification with a particular location, site or décor is not to be thrown away lightly and as such trying to find a solution without moving is by far better than just considering a space for a lower rent or closing all together.  Walking away should not be your first thought. 

 

Here are some points to consider when discussing the situation with your landlord.

 

• Renegotiate

• Sub-let

• Ask for free , deferred or added months (extension) to the end of the lease to stay.

• Relief programs from your local community

• City programs for assistance 

• Sub-divide your space

• Change from a triple net to an acquisition over time

 

 

If you are interested in more information about these issues please contact us at BIZRESCUEFINANCIAL.COM or 303-339-5280