Rent Relief Strategies
As companies continue to navigate the impacts of COVID-19, tenants are considering options for rent relief as liquidity and working capital have decreased. Tenants should be proactive and reach out to landlords and other creditors while considering options for rent relief. Options might include reduced rent, deferred rent, or early termination among others. Tenants should provide supporting documentation to demonstrate a fully developed plan specific to the company’s situation to allow the landlord or creditor to make an informed decision.
CR3 Partners will review several common options to consider for rent relief strategies.
1. Stop paying rent altogether.
This option is very risky and usually not recommended as it has less certain of an outcome from the landlord or creditor; although there are extenuating circumstances when this is the only possible action. Tenants should be using this time to provide clear communication lines with the landlord to ensure both the tenant and the landlord understand each unique situation.
2. Rent reduction or rent deferment.
Provide a proposal to present to the landlord that includes how much of a reduction and for how long. Support the proposal with a cash flow forecast including options to show how the landlord can recover after the crisis which includes paying a reduced rent for an agreed time period, paying a balloon payment at the end of the lease, extending the term of the lease, adding interest on unpaid amounts, paying only CAM expenses for a period of time, or structuring a new lease.
3. Early termination or vacate the premise.
Each tenant should consider the factors specific to their situation. If the lease expires soon, consider vacating early. If not and the business is still operating at a reduced capacity, consider implementing a strategic change such as consolidation.
Tenants and landlords should continue to watch for evolving government assistance programs as well as review credit agreements and insurance policies. Keep detailed records of any information prepared to negotiate the change and review all expenses and cash flow opportunities to demonstrate a fully developed plan. The documentation should include a letter with a specific ask and expect the landlord to also ask for additional information including tax returns, historical financial statements, and any KPI reports to support the impact to the business.
CR3 Partners, LLC is a national turnaround and performance improvement firm that assists, guides and collaborates with management teams and their constituents facing any sort of transition, stress or distress. David Tiffany is a Partner in CR3’s Los Angeles office.