Finally! We have left 2020 behind us! A year that felt like several may have come to its end, but New Year’s Day did not bring an ending to Covid-19 and the unprecedented impact it has made on the economy. Many businesses are still closed under safe distancing orders, causing hundreds of thousands of businesses big and small to struggle remaining afloat - or close all together. Some studies show that over half of the businesses closed due to Covid-19 may soon be facing permanent closure. So what are our options?
If your business has decided to close or change service temporarily due to Covid-19, one of the most devastating income losses can be in paying rent. It can be especially discouraging to pay for a property that is forced to close with no end date in sight. However, do not lose hope! There are several options for businesses owners to adjust their lease agreement with their landlord. In this article, we will break down three of the most popular lease restructuring options for business owners during Covid-19, including “Rent Abatement”, “Rent Deferral” and “The Blend and Extend Method”.
Rent abatement is theoretically simple: you won’t have to pay rent! For a set amount of time agreed upon by you and your landlord, you will not be responsible for rent payments or will be paying a much lower rate. Typically, rent abatement can be discussed early in the lease as landlords want to provide a special offer to keep you as a customer. As you can imagine, no rental payments may be hard to negotiate with your landlord. However, during the Covid-19 health situation, many landlords may be more willing to negotiate as they are sure to be losing customers themselves and would rather delay their income than entirely remove it. Talking to a real estate law expert before beginning negotiations will help increase your chances of total rent abatement.
Rent deferral is a popular option that allows rent payments to be delayed for several months. However, unlike rent abatement, you are not off the hook for the owed rent. It will instead be diverted into later payments. In the especially unique situation of Covid-19, rent deferral may be a worthwhile option for your business if you are confident in an income rebound after the lockdown ends. However the risk can be high. While medical progress is being made by the day, we are still unsure on the timeline of returning to normal business operations. Rent deferral can buy you time, but be sure to check local guidelines and your business’s financial status before making a final call. You can reach out to a real estate attorney to understand your deferral options.
“Blend and Extend” is a lease restructuring option that will lower your monthly rent payment by extending the years of your lease. This can allow for some immediate financial relief by lowering payments, but also increases your commitment to the property. For example, imagine you own a restaurant on the main street of your town. You have 3 years left on your lease, but
with Covid-19 shutdowns forcing you to only serve takeout, you have struggled to make rent. By “blending and extending” that lease, you can lower your monthly payment in exchange for turning that 3-year lease into five years or even more. This can help any business owner, like our restaurant owner, who is struggling with lower income during Covid-19 but still fully plans on committing to the property. Of course, this option is not for every business. You need to check your finances in detail and be assured that you are in a place to both continue making payments and extend the lease.
In this article, we broke down your lease restructuring options as a business owner in 2021. We discussed how Covid-19 has affected businesses and how lease changes may make the difference between a temporary problem and a permanent closure.
Please reach out to us for assistance relating to your situation, and feel free to check out our site for more information on 2021 Real Estate Law. Thanks for reading!
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