Rent Restructuring Options for Business Owners
If your small business has been impacted by the Coronavirus in the form of reduced business, forced closures or other measures, you undoubtedly have reduced income and like many, those losses can impact your ability to pay your rent for your business location.
Having your business impacted by Covid-19 or even closed without knowing when you're allowed to reopen adds to the uncertainty from small business owners around the country. However, there are options for small business owners that can help renegotiate and restructure their rent obligations. We're going to take a brief look into three methods small business owners can utilize to help your business stay open in 2021.
Rent abatement is one option that is theoretically simple: you won’t have to pay rent and this option can be for a specific time agreed upon by you and your landlord, you will not be responsible for rent payments or will be paying a much lower rate. Typically, rent abatement can be discussed early in the lease as landlords want to provide a special offer to keep you as a customer.
As you can imagine, no rental payments may be hard to negotiate with your landlord. However, during the Covid-19 health situation, many landlords may be more willing to negotiate as they are sure to be losing customers themselves and would rather delay their income than entirely remove it. Talking to a real estate law expert before beginning negotiations will help increase your chances of total rent abatement.
Rent deferral is a popular option that allows rent payments to be delayed for several months. However, unlike rent abatement, you are not off the hook for the owed rent. It will instead be diverted into later payments. In the especially unique situation of Covid-19, rent deferral may be a worthwhile option for your business if you are confident in an income rebound after the lockdown ends.
However the risk can be high. While medical progress is being made by the day, we are still unsure on the timeline of returning to normal business operations. Rent deferral can buy you time, but be sure to check local guidelines and your business’s financial status before making a final call. You can reach out to a real estate attorney to understand your deferral options.
Blend and Extends
“Blend and Extend” is a lease restructuring option that will lower your monthly rent payment by extending the years of your lease. This can allow for some immediate financial relief by lowering payments, but also increases your commitment to the property. For example, imagine you own a restaurant on the main street of your town.
You have 3 years left on your lease, but with Covid-19 shutdowns forcing you to only serve takeout, you have struggled to make rent. By “blending and extending” that lease, you can lower your monthly payment in exchange for turning that 3-year lease into five years or even more.
This can help any business owner, like our restaurant owner, who is struggling with lower income during Covid-19 but still fully plans on committing to the property. Of course, this option is not for every business. You need to check your finances in detail and be assured that you are in a place to both continue making payments and extend the lease.
In this article, we broke down your lease restructuring options as a business owner in 2021. We discussed how Covid-19 has affected businesses and how lease changes may make the difference between a temporary problem and a permanent closure.
if you need assistance renegotiating or restructuring your current lease, contact us right away to begin the process of helping you keep your doors open. If you need small business logistics & resupply services anywhere in the world, contact our partners at Bellair.
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