You are leasing office, retail, or industrial space and due to COVID-19 your business is at a standstill and you have little available cash to pay bills. Welcome to the new reality that will hit the commercial real estate market hard, starting now.
What decisions can you make now in order to make your next rent payment?
1. Business Interruption Insurance
Almost all landlord leases require that the tenant maintain business interruption insurance, sometimes referred to as business income coverage. Business interruption insurance helps replace lost income and pay for extra expenses when a business is affected by a covered peril.
Every policy is different, however, some do cover pandemics. I would strongly encourage you to review your leasing terms as well as your insurance coverage and see if you qualify.
2. SBA Disaster Loan Assistance
The government is about to launch a new low-interest 30-year loan program for businesses of all sizes, private non-profit organizations, homeowners, and renters. SBA disaster loans can be used to repair or replace the following items damaged or destroyed in a declared disaster: real estate, personal property, machinery and equipment, and inventory and business assets.
3. Talk to Your Landlord
Rather than simply not pay rent, I encourage you to notify your landlord ahead of time. Let them know your situation and include a current bank statement to verify cash, current receivables, profit and loss. In 2009, our firm was successful in working out a deferment of rent that got us through the crisis and we remained a tenant in good standing through to the end of our lease term. Furthermore, if you are in a position to pay partial rent, that too is worth doing. Still give your landlord advanced notice either with a phone call or written letter with the payment. Again, it’s a good idea to also include your financials. You could also ask that any rent not paid be deferred and amortized over your remaining lease term to avoid being at fault.
4. Talk to Your Lender
If you are the owner of your building and you also own your own business, call your lender right away and follow the same procedure as stated above.
The worst thing you can do is simply not pay. Everyone is aware of the situation. Keeping everyone informed will show responsibility and keep you in good standing with your lender and landlord. Assure them that as soon as everything is stabilized, you will do your best to pay your rent.