If you fall into the category of ‘non-essential businesses’ as many of us do, your ability to keep the doors open and generate income has probably been put on ice until at least mid-April. This circumstance could have you concerned or losing sleep about making an upcoming rent payment. Rent deferral may be a great option to consider talking to your landlord about. But first, take a deep breath and know that you are not alone during this crisis. We are all battling this fight together. Hopefully the shared experience only increases empathy and understanding at the negotiating table. We asked for advice from a few of our seasoned tenant rep brokers on how to best approach your landlord in regards to your rental obligations.
Rent Deferral vs. Rent Abatement & Why It Matters
Make sure you’re clear about exactly what you’re asking for. While the terms sound similar, Rent Deferral and Rent Abatement are two very different things. Let’s quickly define the two:
Rent abatement is a concession given by a Landlord to incentivize a tenant to sign a lease in the Landlord’s building. Rent abatement is negotiated in conjunction with the other major lease terms before the lease is signed. Think of rent abatement as “Free Rent”.
Example: A Landlord offers free rent for the first two months of the Tenant’s lease if they sign the lease by the end of the week.
Rent Deferral is a period during a lease term during which the tenant will not pay rent, but will reimburse the Landlord for the deferred rent over future rent payments. Think of rent deferral as a loan that needs to be paid back over the term of the lease.
Example: A Tenant can’t operate their business for 3 months for an unforeseen reason that is out of the Tenant’s control. The Landlord might agree that the tenant does not have to pay rent for those three months, but will increase their future rent payments proportionately so that the value of the deferred rent has been paid back over the future rent payments.
Leave Your Emotions At The Door
Strong emotions and opinions may be running particularly high these days, but it’s always good practice in negotiations to keep emotions in check. The goal of any successful negotiation– have each party walk away feeling good about the outcome. (Maybe you check out this Harvard Post on How Emotions Affect Your Negotiating Ability) before having the conversation or pressing send on an email. Have someone you trust review and edit anything you write before sending.
Consult With Your Attorney & Get It In Writing
As with all contracts– get it in writing. If you or your Real Estate Broker talk to your landlord on the phone, be sure to follow-up the conversation with a written email for record-keeping. Be sure to copy your attorney on all communication. We always recommend having your attorney review any and all amendments or adjustments made to your existing lease. *We are not attorneys and are not licensed to give legal advice, so we actively encourage our clients to seek appropriate legal counsel when it comes to their lease contracts. Need legal counsel in Austin? – visit our COVID-19 Resource Center for our legal preferred legal partners
If you believe you won’t be able to make an upcoming rent payment, don’t go radio silent. Due to the nature of this unprecedented event, it may be safe to assume your landlord is expecting their tenants to reach out. Once you’ve been able to seek legal counsel, the more proactive and timely you can be on reaching out to your landlord the better. This provides all parties more time, reduces stress and will help demonstrate good faith on your part.
Before having the conversation, be sure to do your homework.
“When asking Landlord’s for deferred rent I suggest that Tenants come prepared with financials, the revised business plan, and their immediate cost cutting measures. Landlords are going to want to know the nitty gritty details of the business moving forward before deciding on whether to provide rent relief.” – Scott Studzinski, Partner at Elevate Growth Partners
Demonstrate Good Faith And Build Rapport
If you are able to reach an agreement with your landlord, be sure to do everything you can to fulfill your obligations. While none of us know exactly what the next few weeks or months will hold, it’s important to remember that everyone is experiencing similar financial and emotional strains. If you haven’t had a great relationship with your landlord, now is a great time to work on building rapport and trying to mend the relationship. Over communicate and stay in touch. Consider writing a handwritten thank you note and delivering it with a bottle of wine or a small thoughtful gift as a token of appreciation. In times like these, a little can go along way.
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