How Small-Business Owners Are Negotiating Their Lease with Commercial Landlords during COVID-19

by Edgar R. Olivo

The pandemic, protests, lack of leadership, declining economy and low confidence in the market have made negotiating a commercial lease a major financial problem for small-business owners.

As we see every day in the news, small businesses are at the forefront of stay-at-home orders, curfews and mandated closures. Most cannot afford to wait for these major obstacles to pass, and borrowing more money to pay the rent will make returning to “normal” much harder.

With less revenue earned in the business, paying the rent on an active lease will require small-business owners to prepare for negotiations, search for legal help and find financial resources. Fortunately, with the record number of unemployment claims, loan defaults and bankruptcies, landlords are more open to lease negotiation because they also need revenue to pay their mortgage bills.

Small-business owners will want to negotiate for better terms and rates, payment deferments, permission to sublet or subdivide a space, waive late fees, or consider lease buyouts. It is important to note that having a good relationship with your landlord and a solid record as a tenant with good payment history will put you in the best position to negotiate.

Make sure you understand your current financial position and start the conversation with your landlord early. You will want to have available any documentation that reflects how COVID-19 has impacted your business as well.

Come up with a plan before speaking with your landlord.

Start by contacting your landlord to schedule a meeting about your lease and let them know how the pandemic has impacted your business. Next, find a compromise and be sensitive to the landlord’s needs as well; it will be important to think of all win-win scenarios. You may have to give something up to gain relief from your landlord; this is part of the negotiation process. Finally, make sure to document the conversation and get copies of any agreements you make to the adjusted lease.

The most common lease adjustment a landlord agrees to make is reducing the rent to the reduced levels of operation during a set period. Make sure to have this type of change reflected in your new lease agreement.

Here are some additional tips to help small-business owners negotiate effectively with their current landlord:

Starting a New Lease

Make sure to review the lease contract with a lawyer before signing.

Some terms can be confusing, but it could save you a lot of money to have an extra set of eyes help you make the best decision before entering a contract. Make sure you thoroughly understand the following terms: rent, rent amount, lease expiration, default clause, guarantees, security deposit, operating covenants, insurance requirements, and any other special clauses such as force majeure.

Taking the time to review these terms in your contract will put you in a great position to negotiate with a landlord. Rocket Lawyer is providing free legal advice and legal documents on their Coronavirus Resource Center.

Late on Rent?

Make sure you understand what relief strategies are available to you.

In many cases, it is a lot easier to defer one month of rent than six months. Relief strategies include rent reduction for a set period, rent deferral for set period, rent abatement or suspension for a set period, late payments converted to a loan paid back over time, grace periods to stop late penalties, using security deposits as a credit toward the rent, waiving late fees on other items not specific to rent, extending the lease to cover a longer term at a lower rate, or requesting temporary leasing to cover the period during COVID-19 while you plan to reopen.

Planning to Break Your Lease?

Find professional help first! There are many resources and programs available to help you relieve the pressures of keeping your lease, such as the Paycheck Protection Program (PPP) or local and state government loans and grants to help struggling small businesses.

Make sure you check your lease for any early termination consequences and talk to your landlord before breaking your lease. There are many negative impacts to you and your business that a landlord will have a right to pursue, so having this conversation early could help you smooth over any possible hurtful outcomes.

If Your Landlord Does Not Want to Work with You

Make sure to get legal help! A lease is a contract, and with all contracts you will want to make sure you can be as prepared to defend yourself as you possibly can be.

For more help with your lease, visit AZ Law Help to find lawyers offering pro-bono support for small-business owners.

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