Navigating commercial real estate leases during COVID-19

Closed to COVID-19
Editor's Note

This article is sponsored by Real Strategy Advisors.

By Darren Fleming, MBA
CEO of Real Strategy Advisors

With recent actions and talks surrounding deferral periods on rent and mortgages, people in the commercial real estate arena need to understand what this all means. What a deferral period might look like can vary drastically as most landlords are dealing with their commercial real estate tenants on a case-by-case basis. The willingness of landlords to help in these situations is highly dependent on what the building owner’s mortgage situation is. If the bank is offering flexibility on the mortgage to the owner, this leniency should most certainly be passed on to the building’s tenants as well.

The key to negotiating any deferral period is understanding how much rent will be held over and over what period it’s expected to be paid back. Businesses are not created equal and are also affected differently during this time. The context of each business’s ability to pay back rent will differ — especially during a crisis when financial resource prioritization is paramount.

Here are the top three things to remember when negotiating rent relief due to COVID-19:

1. More power than you think

Things seem dour when money is tight but you have more power than you think. Since the courts are closed, and any prospective tenants are self-isolating, no landlord should be looking to go through the tenant eviction process at this time. Since the likelihood of finding a replacement tenant is quite small, it’s better for them to stick with you! This means that tenants have more negotiating leverage than they might believe. Remember that the landlord is essentially an investor in your business. It’s in their best interest that your business remain healthy so you can pay rent in the future, if not at the moment. So don’t be afraid to ask for relief, but be prepared to show evidence of economic hardship to justify your request.

2. It’s all about the mortgage

The single most important variable in this discussion on rent deferral options and flexibility is the property owner’s relationship with their bank. A landlord’s ability to finance rent abatement or deferral typically requires an agreement being reached with the bank on how mortgage payments will be treated in the immediate future. Until such an agreement has been reached, it’s difficult for your landlord to easily commit to a relief package where they incur all risk. That said, with the announcements from various levels of government on relief measures that are rolling out to help Canadians, assistance should make its way to the tenants as well. The earlier you start the conversation with your landlord, the better they will be able to manage your request.

3. Shorter may be better

Darren FlemingEconomic conditions as a result of the COVID-19 outbreak seem to be changing with each passing day. Given the lack of clarity, it may be difficult to make any long term real estate commitments for your business at this time. Until we have a better picture of how this crisis will unfold in the long run, Real Strategy Advisors suggests that negotiating short-term lease extensions may be necessary in order to buy some time to better assess how your business will recover when economic conditions return to normal.

Real Strategy Advisors have already helped several tenants negotiate short-term COVID-19 relief. Please contact Darren Fleming if you’re looking to have a conversation with your landlord or are currently in talks with them and want to know your rights. You can also reach out to Real Strategy Advisors today for more information on commercial real estate and how to obtain relief in these uncertain times.

Darren Fleming has been an industry leader in the commercial real estate sector for over 17 years providing expertise in the areas of workplace strategy and commercial real estate brokerage. Darren has worked with some of Ottawa’s most active commercial design builders and major commercial real estate brokerages. With exceptional consulting and business strategy skills, he is an experienced leader and provides C-Suite level advice to his clients.

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