Landlords and Rent Relief – Outside the Government Relief Packages

Legal

Friday, March 20, 2020; 12pm-1pm

Landlords and Rent Relief – Outside the Government Relief Packages

Panelists: Rocco Fiorentino, CFE / Ty Brewster, CFE

Webinar Summary

Led by panelists and franchise real estate specialists Rocco Fiorentino, CFE, and Ty Brewster, CFE, the “Landlords and Rent Relief – Outside the Government Relief Packages” webinar focused on the functional aspects of landlord-tenant relationships and lease agreements given high levels of business uncertainty due to Coronavirus/COVID-19. The panelists underscored the need for franchisor clients to equip themselves with knowledge on the terms and provisions of their lease agreements; to know their business, sales, and operations history; and to communicate clearly and strongly with their landlords to negotiate the best possible agreement.

Below are key bullet points from the webinar

  • Timing is everything: it is prudent to open the lines of communication with your landlord early
  • Determine what your needs are and know what you’re asking for – Options: A) Relief in rent B) Rent abatement C) Lease extension consideration
  • Know your lease and its provisions so that you can navigate through negotiations with your  landlord from an informed position
  • Investigate other/outside avenues of rent relief. Your landlord will want to know that you’re looking in other directions and not just at them to solve the cash crunch problem and they will ask where you are looking for relief. Be prepared to answer those questions and to communicate what is available to tenants.
  • The first opportunity to do something is the best opportunity to do something. Be definitive, be specific, stand behind your request, and believe in your ability to recover with the landlord’s help.
  • Give a realistic timeline for response and communicate the plan for resolution; recommit to landlord when possible, and be persistent.

Below are the full bullets from the webinar -

  • One size fits none
  • Clients are retail tenants; franchisors, and their experiences with landlords
  • Timing is everything; prudent to get to landlords early
  • Tenants are facing        
    • Business strategy uncertainty – length/duration
    • Short term rental relief need
    • Social distancing
    • Revenue decrease – rippling through the economy
    • Layoffs/downsizing – those that rely on tips have nowhere to go to work
    • Loss of productivity
    • Access to capital
    • Changes to sq. ft. needs
  • Landlords – facing similar problems
    • Tenants downsizing
    • Commercial RE values
    • Limited buyers for assets
    • Access to capital
    • Downward pressure on rent
    • Rising vacancy
    • Tenants seeking rental relief
    • Weaker balance sheets
  • Early to be calling landlords and asking for what you want, given the uncertainty for the length and duration of the pandemic
  • Question 1: Are you asking for 1) relief in rent 2) rent abatement 3) lease extension consideration – determine what your needs are
    • Landlords are putting together committees to develop programs and rules for how this happens
    • Understand what you’re asking for, and how you’re asking; landlords won’t forgive rent without thinking about how they’re going to get through this process
    • Asking what franchisor is doing for the community – is the franchisor reducing royalty fee, reducing ad fund costs etc.?
      • When asking landlord for consideration, include what the company is doing for consideration of their employees/tenants/franchisee
  • Question 2: Does this situation constitute an Act of God? Know your lease and its provisions so that you can navigate through this better; come to the table with information on lease provisions – open your leases and read the provisions (force majeure, go dark provisions, penalty clauses, due dates, defaults and remedies)
  • Outside of landlord: provision for business interruption in insurance agreement; Bank requirements and loan covenants; Consider franchisor relief programs; Gov’t programs and aid packages available on state or federal levels à Landlord will want to know that you’re looking in other directions and not just at them to solve the cash crunch problem and they will ask where you are looking for relief. Be prepared to answer those questions and to communicate what is available to tenants.
  • Ask insurance agents / lender to see what they’ve seen and can do. Gov’t wants to help small businesses, but not sure when or how this will be provided
  • Know your sales numbers – compare by quarter – including breakdowns for specific system (i.e. if you’re a restaurant, dine-in versus take-out). Know whether you can use this as a leverage tool or not. Know your system’s average break even point.
  • Presenting request to Landlord – timing is everything and don’t rush to do this à the first opportunity you have to do something is the best opportunity you have to do something
    • Be definitive
    • Be specific
    • Stand behind your request
    • Believe in your ability to recover with the landlord’s help
    • You’ve improved real estate with your franchisee – you have an investment in this space, and landlord needs to hear that you’ve improved the property with build out
  • Give realistic timeline for response and communicate the plan for resolution; recommit to landlord when possible, and be persistent
  • Uncertainty – understand your capacity for leverage when negotiating a new lease
  • Focus on improving outcomes for everyone
    • Support teams; preserve; unprecedented situation
  • Landlords need a specific request on what you can do by April 1st – communicate your situation to your landlord so that they know what sort of relief is being requested
  • Request of the IFA – personal guarantees and defaults à legislation that restricts landlords from going after tenants for a lot of money; minimize personal guarantees for 3,4,6 months so that people who lose their business aren’t on the hook for defaults and ongoing leases “good guy clause” legislation