COVID-19 Rent Deferment Options

Emergency!

While many small healthcare practices (medical, dental, optical, etc.) have shifted from the focus of patient care to “Emergency Only” centers, they are also faced with several additional dilemmas. One of which is, how to keep small business healthcare practices afloat while only seeing a fraction (if any at all) of the normal patient base. Over the years I have worked extensively with dentists and healthcare providers to review overhead and save money whenever and wherever possible. Mostly my reply has been, “You can’t save your way to prosperity.” However, today it’s not about saving a percentage point here or there on your monthly P&L statement, it’s actually answering the question of how to save your business from going under.  While this is, for some of us, the most difficult time period of our professional lives, the only solace is in the fact that we aren't alone. Nearly all small businesses from restaurants, to nail salons, to dental offices are struggling to make ends meet...well, except for our local wine and liquor stores - thanks to the daily Quarantine Happy Hour. 

Seeing the “pause” as an opportunity

It almost goes without saying that we have the decision in life to face a situation one of two ways, 1) we can approach it with every bit of negativity we have and take on a “the sky is falling” mentality or 2) we can view this time as an opportunity to “sharpen the saw” as they say. It’s not that easy right? Well, the answer to that is yes and no.  

No. This isn’t going to be the time you start and finish that sought after MBA, or write a book, or you aren’t likely going to take that long-awaited family trip you’ve been wanting to do for years. For the purposes of this discussion, this isn’t even the time to overhaul your entire business from top to bottom.

Yes. It is however a time to take online CE, read medical journals that you’ve been stacking up or saving on Evernote, start a game night routine with your kids, walk the neighborhood after dinner...turn the TV off and really get to know the people you live with. The glass is literally half full. Slow down and look at a few (and I mean just a few) ways to run a better business. So I will tell you emphatically, the answer is yes - if you commit to reviewing and identifying two or three areas for improvement for when you return to “business as usual” or as close as it’s going to get for a while.  

Operating Expenses (Fixed vs. Variable)

One easy way to “sharpen the saw” will be to review operational expenses, making sure to differentiate between fixed vs. variable costs, as well as understanding what will be affected and unaffected when you return to operational speed. Oftentimes, we as small business owners, can get a little sideways on how we see our operating sheet each month. The rule of thumb is to “Worry about the things you can change and don’t worry about the things you can’t...until you can do something about it.” Most of the time that is correct. However, always remember that just because you have a fixed expense, like a lease agreement, there is always an opportunity to negotiate or to make changes - if the change can benefit both parties. My good friend and local attorney, Aaron Fletcher of The Law Office of Aaron Fletcher, reminds me often that a contract is just an agreement between two parties that can be modified at any time. A lease agreement works in much the same way and is, for most healthcare practices, the second largest expense next to owner salary/profit. Here are two questions you’ll need to work on and we’ll make some decisions according to those answers.

What point in time am I in my lease?

If you are more than 12 months away from the end of your lease, one option you have is a Lease Addendum simply referred to as the COVID-19 Rent Deferral Addendum. I have used and seen several versions of this contract, all of which are one to two pages and can range in structure from a lease extension or just an agreement to pay the deferred months rent due at a later date. Several factors will obviously come into play; Your relationship and history with your Landlord, your location, potential documentation on your hardship to name a few. But next to the PPP Process, it is straightforward and easy to navigate.  

Having less than 18 months on your current lease may give you some additional options. First, I would anticipate you have already begun the process of considering what your renewal or negotiating your lease terms might be...but if you haven't, what better time to work on a huge part of your overhead! As a sole proprietor you feel the pain of rent coming due, especially while not working. But at the same time, the Landlords feel it too - they get it, they are human. While many businesses are on the verge of collapse, this would be a really nice time in true Warren Buffett fashion, to double down on your business and extend or renegotiate lease terms. Aaron’s point of view on the concept of requesting early modification or restructuring of your lease is that, “you’ll miss all the shots you don’t take.” For this option, I would suggest that you enlist the help of your Commercial Realtor?? or your business Attorney (if they regularly review leases as a part of their practice).

Should you or should you not use the Rent Deferment option?

Don’t do this one by yourself! You should always run this by your CPA prior to making a decision like this. Tax law for the small business in the U.S. is very tricky to navigate and can be costly if you make errors in judgement. So the answer to this will always be, that it depends. Just because you can - doesn’t always mean that you should. Congress has done the best they could, under what are extraordinary circumstances, to help America’s small businesses. If you filed for and received the Paycheck Protection Program (PPP), you can use 25% of the funds for building or operational costs. But that is only going to cover 8 weeks, and your business isn’t likely going to be running at full speed in 8 weeks.  So what can you do? Like I said, talk to your CPA. I spoke with Grieg Davis with Dental ROI Associates, and we agreed on the following options:

1. Request a COVID-19 Rent Deferral from your Landlord.
2. Restructure, extend or modify your existing Lease. 
3. Take advantage of several of the CARES Act options:
4. Paycheck Protection Program.
5. $10,000 EIDL Loan Advance.
6. If you currently have a relationship with an SBA Lender you can look at additional options for Express Bridge Loans or Debt Relief.
7. The return of the Net Operating Loss deduction that can go back for 5 years.
8. And then there is always the option to do nothing, if you and your CPA feel it’s in your best interest.

Don’t work through this alone

While Americans continue to practice social distancing and economic hibernation, don’t fall into the mistake of looking at this yourself. Dig into your email and contact your CPA with these questions (hopefully many of you already have), reach out to your Commercial Realtor? for advice - many of us have templated forms for your use and would love to help out. I have been working closely with another local Nashville attorney, Mollie Gass of Rudy Winstead Turner, PLLC, to make sure that I was providing the most comprehensive Addendum to protect my clients during this time of need. Those templates are available upon request, see my contact information below. 

Being a sole proprietor doesn’t mean you fly solo. Get the right people in place to help you make the best informed decision for your circumstances. Every option will be unique to you and your business. My hope is that you found this article to be a quick read, that it validated some actions you have already taken or inspired you to dig a little further and enlist some professional help in the areas of tax and real estate matters. Should you need assistance or if you’d like me to review your current lease options with you, I’d be glad to offer my services personally or connect you with another licensed Commercial Realtor?? in your area. In most cases as a tenant, the services of a Realtor?? are at no cost to you.

About the author:

Andy Austin is a 20 year sales veteran in the pharmaceutical, medical and real estate industry. Excelling in sales and management positions, with US Pharmaceutical, KV Pharmaceutical and Patterson Dental Supply and most recently with Compass Tennessee, LLC in Nashville as an Affiliate Broker in the Healthcare Commercial and Residential markets. Andy, his wife Tabatha and three teenage children reside in Mt. Juliet, TN. Feel free to contact him directly at [email protected]

Team of advisors and experts quoted in this article: