We Are Here To Help Negotiate Your Commercial Lease Agreement During A Crisis
So many times we have seen clients try to go it alone, but Limestone Commercial is here to help. We can help review your lease to find out what options you have and strategize negotiations for rent relief, restructure, subletting, or even termination.
Rent Relief vs. Lease Restructure
How can you pay your rent if you’re closed after a stay at home orders were issued by Governor Abbot on April 3, 2020? Some businesses were able to keep working, such as brokers, but if you’re not working then we’re not working. We are here when you need help with your lease, whether it’s regarding asking your landlord for rent relief or negotiating a lease restructure. Limestone Commercial is passionate about helping tenants with their lease during these trying times. We have extensive experience in working with tenants on rent relief and lease restructuring.
Your Options With Your Lease May Include:
- To get immediate relief you can go to your landlord and ask for a couple of months of rent relief. This should be your first step to see if your landlord is willing to help in your time of need.
- Rent deferral, also known as amortized rent abatement, would increase future rent and provide current relief. Say you need 6 months of relief but you have 24 months left in your lease, then the rent relief would get amortized over the 24-month span, raising your rent in those future months based on how much rent relief you asked for.
- You can add months to your current lease. Say you have 24 months left, and you need 6 months of relief, you would then have a 30-month lease.
- Early renewal may be an option, if you like your building and you like your landlord, then the easiest thing to do is an early lease renewal. If your landlord believes in the viability of your business, they should strongly consider this option.
Landlords are in the same boat. If you can’t pay your rent then they can’t pay their mortgage.
Sublease & Assignment Rights
So what is the next possible outcome? Perhaps you’ve found that you are doing really well working from home, and your employees are also succeeding working from home and you find that you really do not need this office space, yet you have 3 years left on your lease.
There are 2 provisions in most leases, a sublease, and an assignment clause.
The sublease clause basically gives you the opportunity to lease your space and you act as your own landlord. This requires landlord approval. You can rent it out for the same amount or less, but you are still responsible for the full contractual amount in your lease. You are still on the lease, but the landlord now has 2 parties responsible for the rent.
Assignment is when your lease is transferred entirely over to another party. Landlords are not as open to assignments. Generally, landlords are only willing to do an assignment when the party coming in is a large corporation or a very financially strong business(stronger than yours).
What steps can I take to be prepared to negotiate my lease during a crisis?
- Find your lease document
- Abstract important clauses (Lease Expiration Date, Renewal Notice)
- Set notifications for critical dates
- Communicate with the building owner/manager/leasing agent
Not all leases have a termination clause. You will need to read your lease carefully to see if yours has one. This is something that Limestone Commercial words to negotiate upfront. A termination clause will normally have caveats, such as things you have to demonstrate before a landlord will agree to the termination. We have negotiated for non-profits to terminate if they lose their major grant. In most cases, a lease termination clause will include some type of financial penalty.
Contraction rights aren’t something typically included in a lease agreement. A contraction option would need to have been negotiated upfront. However, that doesn’t mean that you can’t trade with the landlord to contract your space and provide the landlord something valuable to them, such as an additional term.
When we look at the relationship between a tenant and a landlord, they are both business owners. The tenant generally tries to take the least amount of commercial real estate space needed to run their business and sign the shortest, most flexible lease terms they can to reduce their overhead and increase their profitability. On the flip side, the landlord wants you to take more space and sign a lease for a longer-term. This means more rent for them, increasing the value of their building.
Building a relationship with your property manager is crucial to gaining leverage when you need to renegotiate your lease. Communication is key to these opposing interests during a crisis. Approach your landlord with your forecast for your business in the coming months. Explain to them where your business is currently and when you see it returning to sustainable levels.
We just negotiated a 5-year lease, with abated rent upfront, and the tenant had just come off their abated rent when COVID-19 hit. Although deemed an essential business, clients had stopped coming into the business. We encouraged them to go to their landlord to see what could be done. Having been in the property for 10 years, the landlord didn’t want to lose the tenant and asked if they could at least pay 1/3 of their rent for 3 months and in the meantime, the landlord said he would work with his lender to see if he could get some relief. If relief was granted, then he could pass that on to the tenant.
Limestone Commercial Is Here To Help With Your Commercial Real Estate Lease Negotiation
We are here to help when you need to negotiate the terms of your commercial real estate lease with your landlord during a crisis or anytime. We would be happy to go through your options with you to find the best outcome for your commercial property needs. While some jobs are able to function working remotely, many businesses cannot maintain their workforce and their culture when they are not all together. There is a sense of comradery that develops from people coming together to work.
Call us today to see how we can help sort out your lease options during a crisis at (832) 623-6674.