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Faced with continued economic uncertainty and the expiration of the federal Paycheck Protection Program for those fortunate to secure forgivable loans, many small businesses are still struggling to cover one of their largest fixed costs: rent.
Business owners with dwindling income resulting from the pandemic are working on arrangements to reduce or delay rent payments to their landlords, who have their own expenses to cover, including mortgage and tax payments. Nationwide, hospitality, certain retail segments, and small businesses have been especially hard-hit.
Commercial building owners and operators are generally willing to provide tenants with some form of relief, as long as they can demonstrate that they need assistance, according to a July survey by NAIOP, the Commercial Real Estate Development Association. Offering the ability to delay and amortize rent payments or abate rent in exchange for a longer lease remain the most common forms of relief (adopted by 77 and 55 percent of respondents, respectively) and most respondents (71 percent) continue to request that tenants provide financial evidence that they need assistance.
In an effort to curb the widespread loss of small businesses, a few states (including New York) and local governments adopted eviction moratoriums and rent-relief measures for commercial properties—but some expired recently or are due to expire in the near future, even though the pandemic continues.
For their part, many commercial landlords are seeking assistance from their lenders to help them cover their expenses during periods when tenants are deferring rent payments. Some landlords also are asking local governments to delay property tax collections, which would enable them to offer tenants more rent flexibility. But many municipalities are already financially strained as tax proceeds plunge and costs skyrocket during the pandemic.
On the retail front, landlords are including pandemic-related language in new leases in an effort to attract and retain tenants. In the event of another government-ordered shutdown, landlords have offered tenants concessions, including deferral of a portion of their rent or offering rent structures tied to businesses’ gross revenues. This enables tenants to reduce their costs while enabling landlords to collect some funds to help defray mortgage and other expenses.
Landlords who believe their tenants will weather the economic crisis are coming up with more flexible rent payment plans because it’s easier than finding new tenants, while some smaller businesses that don’t expect to survive are finding ways to exit their leases. Experts advise that small businesses should provide landlords frequent updates about their ability or inability to pay their full rent, offer ideas for repayment options, and be very familiar with the terms of their lease.
There is help for small-business owners struggling to gain rent relief or face other issues related to the COVID-19 pandemic. One group, Lawyers for Good Government, has partnered with local small-business nonprofits to form a nationwide coalition offering COVID-19-related pro bono legal consultations and assistance.
Given that it doesn’t appear the pandemic will end anytime soon, the rent crisis is likely to continue until 2021 and beyond. The longer the economic recovery takes, it may become increasingly harder for landlords to get concessions from their lenders that in turn let them offer small-business tenants the breaks needed to survive.