6 TIPS... how to ask for a RENT MODIFICATION
I've had the pleasure for the last 20 years of being a project manager for some amazing clients. As an owner's representative for construction and renovation projects, my responsibility includes protecting my client's interests and part and parcel to this task is understanding the nuances in the commercial office leases that they've agreed to. I've reviewed dozens of leases throughout my work. In this surreal time that we're all trekking through because of the COVID-19 Pandemic, commercial office occupiers should take a moment to review their leases, especially those whose revenues have plummeted because of the various state and municipal "stay-at-home" orders.
Hopefully, you've been keeping the lines of communication with your landlord open, if not, it's not too late to start! The financial losses are widespread, reaching into almost every industry. If you're considering asking for rent relief, you're not alone. Here are a few suggestions to go about it.
- Discuss your company or organization's financial condition with your CFO or accountant. You'll want to get an understanding of expenses, both current and deferred.
- Reach out to any other tenants in the same building that you may know or have a business relationship with and ask them if they have had any discussions with the landlord regarding rent relief associated with the COVID-19 crisis. Discuss their experience and outcomes, if any. You're looking to get an idea of what to expect and how you can go about approaching the landlord. If you don't have any relationships in the building to rely on, your broker or tenants in the surrounding neighborhood will also be good resources to understand the state of your particular submarket.
- Review your lease and become familiar with any business interruption, force majeure or other rent abatement clauses or performance provisions. Also note when your lease expires, the escalation schedule and notification protocols.
- Now, using the information you've assembled from above, devise a plan for negotiating. Get input from your CFO or accountant, broker and legal counsel. Determine what you hope to gain. What is your desired outcome? What can you live with? For example, if the landlord will not forgive rent for a period of time, does your financial projections allow for you to counter with deferred rent and a payback schedule? There are a myriad of other options that can be placed on the table.
- With your plan in mind, contact the landlord and begin with a verbal discussion. Follow up the initial contact in writing, requesting their assistance and recapping your conversation.
- Continue the dialogue and document all interactions. Be prepared to demonstrate your need for concessions by showing financials (lost orders, reduced revenue, bank statements/balance sheets, etc...). Also, offer the landlord supporting documentation of your efforts to obtain disaster relief from the government or revenue from other sources (insurance claims, grants, donors, etc..). You'll also want to show any actions that your organization has taken to reduce costs in order to satisfy other expenses (like paying rent). The purpose is to demonstrate to the owner that your organization is not trying to take advantage of the situation and instead looking to partner with them in finding a solution. Transparency and open communication will go a long way.
Good luck, Stay Well and Stay Safe