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The economic impact of the COVID-19 pandemic has devastated millions of businesses across the globe as their income has ground to a halt. This leaves many businesses in a precarious situation in terms of their lease agreements.
With very few businesses having the luxury of rich financial reserves to offset the negative economic effect of the pandemic, it would be wise to consider renegotiating your commercial lease with your landlord.
Read Your Lease Agreement
It is important to first read through your commercial lease agreement to see if it contains any clause/s that could assist you during this period. A common provision contained in many commercial lease agreements is the Force Majeure clause. This essentially provides for an unforeseen event or circumstance that prevents a business owner from fulfilling payment obligations under a contract.
Approach Your Landlord
Should no Force Majeure clause exist, you can consider approaching your landlord with a view to reducing rent. Many businesses are besieged with expenses coupled with an abrupt interruption of their income. In light of this, rental expenses become an unnecessary burden for business owners that no longer use the premises but still need to pay for it.
You must approach your landlord in good faith and frame your negotiation from your landlord’s point of view. It is important for your landlord to understand your current circumstances. Then you can start a successful renegotiation process.
Equally important are the circumstances that your landlord currently faces. These include their financial position, ability to withstand a rent reduction, attitude towards risk, and any contractual obligations they may have.
In cases where your landlord does not completely rely on the monthly rental income, they may consider your circumstances and are more likely to accept a reduction of rent on a temporary basis.
Where your landlord hopes to forge a long-term relationship, they may consider a flexible approach. This would be a good idea as you will remain a tenant for a prolonged period.
You must always frame your renegotiation strategy by looking at circumstances through your landlord’s eyes. This will empower you to communicate your solutions effectively. Then, you and your landlord can reach a beneficial decision.
A commercial lease agreement contains many provisions that can be altered to your advantage. Equally important, these alterations to the commercial lease agreement will have value for your landlord. So, it will encourage them to enter the renegotiation process.
Your first proposal could be to discuss an extension of your existing lease with a much longer time frame. Provided that you are a good tenant, your landlord may be encouraged by the prospect of securing your rental income for a longer period. Especially since the uncertainty of the pandemic does not guarantee a suitable replacement tenant. Additionally, this avoids the rental premises remaining empty for a prolonged period.
Your second proposal could be to suggest alterations to specific clauses in your rental lease that ordinarily enable you to break your lease agreement easily. Although this will severely limit your flexibility in terminating the lease at a later stage, it will reduce your landlord’s risk. So, it may encourage them to agree to these alterations to gain a stronger foothold on the terms of the lease.
Your third proposal could be to incentivize your landlord. Offer an enticing financial reward in return for allowing your rental payments to be delayed. For example, you could agree on an interest percentage added to the deferred rent. Or, with a commercial lease, you could negotiate an income-sharing proposal. This would entitle your landlord to a specified percentage of your business income for a defined period.
This will give you some much-needed breathing space when you need it most.
The Bottom Line
When you are a good tenant, your landlord would be wise to mitigate damages where possible instead of removing you and facing lengthy legal battles. Your renegotiation strategy will enable you to successfully navigate your commercial rental obligations during this pandemic and help to maintain a great relationship with your landlord. Good Luck!