Office Rent Reduction

During the COVID-19 dilemma , let’s chat a bit about some options for you as a tenant for office rent reduction. I was having a conversation with a colleague yesterday (5/28/2020) about this. They told me they have had 1000 requests for rent reductions.  Needless to say, this is alot of requests! During the government shutdowns whether it be federal or local, you still have a business to run. So, what happens when you can’t make your rent? How long can you stay closed?  What are your options?

Requests for rent reduction

Depending on the length of time you have been “forced to close” will depend on a request for a rent reduction. As you are well aware , other options exist such as PPP and CARES from the government.  Keep in mind a portion of these solutions are loans and you will have to pay it back with interest at 3.75%.  If you are in a retail based business, you can first go to the landlord. Ask them for rent relief. How much should you ask for?  You ask for a percentage reduction or a dollar amount.  The option of the two is up to you.  There is a catch, you may have to pay the difference at the end. Here is an example:

Your rent is $1000 per month. You ask for a $200 rent reduction for 3 months.  The landlord agrees , so you pay $800 for the next 3 months. What about the $600 that is not paid? In this example, if your rent is static (unlikely) you pay $1600.00 for your last month’s rent. If you are in a location with multiple tenants having issues, you may have more leverage. The same example works for office and industrial.

COVID-19 Lease provisions?

There will be discussions that will happen due to this recent scenario. Should there be a provision in leases from now on regarding business interruptions caused by a government entity? We have not seen any provisions drafted as of today. To understand if there is a lease provision available to you , your Broker can recommend a CRE attorney.  Brokers and agents are not allowed to draft provisions into a lease, only deal points that have been agreed to. The business interruption may include recourse you have in case your business is shut down when it is not caused by your business.  You may also have a conversation with your insurance company to see if they will underwrite a business interruption policy based on government shutdowns.