If you are a current tenant in a commercial lease, you may be able to use some advice on how to proceed in these uncertain times. It’s especially important to think ahead as a business owner so that you can anticipate future needs. This leads us to a few key factors that today’s commercial tenants should be considering.
Without a Plan You Are Not On a Path At All
Consider your current situation. What path forward will give you the flexibility you need to keep your business going? Take the time to reflect and develop a plan of action to survive these difficult economic times.
Cash is Always King, Isn’t It?
Today more than ever, keeping the cash your business has liquid and readily accessible can be key to your survival. Review your current and historical financial records while taking into consideration the natural ups and downs in your business. Review your expenses. Do you have any costs you can cut? Your lease is likely the biggest expense for your business.
Review Your Lease
A thorough review of your lease may afford you some financial relief. Hopefully, your landlord is wise enough to actively work out a compromise with you. Tru Commercial, can guide you through this process or do it for you.
The following sections should be specifically reviewed in your lease:
Rent – What type of lease do you have? What is your rent made up of? This information will help you understand what expenses you are paying for and how to best negotiate with your landlord a more favorable position.
Personal Guarantee – Outside of your business, who may be liable in the event of default? Did you sign a personal guarantee on your lease?
Lease Expiration Date – When does the existing lease term end? Do you have any renewal options? Are the renewal options at market value? What are comparable rents looking like? How many other tenants does your landlord have that may be affected?
Default – What constitutes a default of the lease? What are the landlord’s remedies if that comes to fruition (penalties, eviction, damages)?
Security Deposit – Does the landlord hold a security deposit, and if so how much? What are the terms of the deposit being refundable?
Obligations – Does your lease require your business to stay open, and if so, are there specific hours and days required? How does COVID-19 affect this stipulation? Is the landlord obligated to maintain a certain level of occupancy of your building?
Insurance – What coverages are you and the landlord required to maintain?
Force Majeure – When unforeseeable circumstances prevent either party’s ability to fulfill a contract, are there any guiding principles that would be in play?
Help May Be Available
The Small Business Administration is addressing COVID-19 through programs like the Payroll Protection Program (PPP) and the Emergency Injury Disaster Loan (EIDL). This aid may be available for your business and assist in providing cash to keep your business afloat or allow you to make your payroll, rent and other hard expenses.
It may be a good idea for you to consult a lawyer with commercial real estate expertise to learn what legal options you may have in regards to your lease obligations, including those that don’t appear within the four corners of your lease agreement. If you are a franchisee, contact your franchisor to discuss what relief they may be willing to provide during this unprecedented time. Subway is an example of one franchisor that has announced assistance to their franchisees.
The Path of Least Resistance
The most likely solution to help you in this time of crisis is a reduction of rent or other lease amendment that the landlord is willing to agree to. It’s best to consult a professional so that a mutually beneficial amendment can be struck between you and your landlord. What to learn more? Email me at firstname.lastname@example.org.
About the Author
Heather Binder is an accomplished real estate professional with Tru Realty in her role as the Director of the Commerical Division. She is dedicated to providing her clients with an extraordinary real estate experience. Her expertise in working with clients made Heather a natural for her role as a certified instructor at the Arizona School of Real Estate and Business.