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Apr 01
2020

Coronavirus and the Rent Problem

Posted by: Steve Marr

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With many states forcing businesses to shut down and those businesses that remain open suffering from reduced customers, many tenants will not be able to pay their current rent.

For example, a mattress firm contacted 2,400 landlords informing them that they considered the virus an “act of God” and would not pay rent on their stores. Subway has alerted over 20,000 franchisees to withhold rent payments for an indeterminate period. 

 

I was driving around my area shortly before the nonessential business shutdown order took effect and noticed many strip malls were nearly empty. No one was getting nails and hair done. The fitness center was vacant.  A yogurt store was shuttered. There were about six cars outside Macy’s and another five parked at Kohl’s. Of course the restaurants were already closed or offering limited delivery or carryout service. Even then, their volume was less than any normal day.

Even with some federal grant funds, many of these businesses are not going to be able to pay rent for several months at the minimum. Each business will be different.  Those with more reserve cash may be able to weather the storm, but the shutdown will wipe out marginal business owners who will never be able to reopen.

A wise landlord will work with a tenant and determine a payment schedule or at least accept partial payment for a period of time. It’s better to get something for the space than work to evict the tenant when you have no one waiting to move into the space.

Additionally, California, Miami, Seattle and New York have already banned landlords from issuing evictions on commercial properties partly because the establishments were ordered closed. Furthermore, those who want to evict the tenant are going to be one of many clogging the court system seeking eviction orders.

In many instances, landlords owe mortgages to banks.  If landlords fail to receive rent, their mortgage payments will go delinquent.

Here are my recommendations to tenants and landlords who find themselves in these situations:

  • If your business is in trouble because of restrictions forced by the coronavirus crisis, proactively contact your landlord. Explain your situation and discuss what arrangements you can make quickly to defer, cancel or reduce rent to prevent permanently closing your business.
  • If you confirm that you will not be able to reopen your business after the shutdown, communicate this to your landlord and ask for forbearance.
  • When tenants can’t pay their rent, it places landlords in a difficult situation.  My advice is to proactively contact your tenants and find out what their situation is.  Listen sensitively and work out the best arrangement possible. I learned a key lesson in business school.  In some situations when all your choices are bad, select the least negative option available.  In this situation, working with your tenant is the least negative option.
  • If you are a property owner and understand that you can’t make your mortgage payments to your financial institution because you’re not receiving your rent, proactively contact your lender and discuss working out a plan.  The lender will not want your property back under the current market conditions and will most likely work with you.

James wrote, “Therefore confess your sins to each other and pray for each other so that you may be healed.” (James 5:16, NIV) Whenever we fall short, we need to confess to the Lord where we were wrong. When we go to those who are unable to honor an obligation, go with the spirit of humility and confession. Look for ways to work through the challenge.  Remaining silent or allowing angry outbursts will not help.  Instead, demonstrate a quiet spirit of humility.  This will help you achieve the best result in a bad situation.

 

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