In these uncertain times, understanding your options when it comes to rental agreements is essential. Foodservice and hospitality operators have questions and we’re aiming to do our best to provide the most up-to-date and accurate answers.
We reached out to CHI Real Estate to get a better understanding of what restaurant owners need to know when it comes to their property and rental agreements. With help from Gregory M Prekupec of Dipchand LLP, here are the answers to some of the most pressing rental questions when it comes to COVID-19.
Do I need to pay rent?
In all likelihood, you are still legally obligated to pay rent and TMI under your lease. Some landlords are already announcing rent deferments or “holidays” in the short term.
What if I can’t pay rent?
Open a dialogue with your landlord as soon as possible. Ask them how they intend to proceed and act on the matter. Communicate your interest is in business continuity, and re-starting your business as soon as possible.
Is there anything in my lease that deals with this kind of situation?
In many commercial leases there is a “Force Majeure” clause that sets out the course of action in case one or more parties to the contract cannot fulfill their obligations due to an an “act of god” beyond their control (environmental disaster, war, etc.).
Some leases may specifically address the issue of plagues or diseases, and some only address the landlord’s side of the contract. Read your lease and consult with your lawyer on the content of your lease.
What are my options?
The single most important step is to approach with Landlord with the spirit of collaboration and attempt to work out a solution to the short term cash flow crisis. Communicating the reality of the situation with your landlord, and understanding more about the Landlord’s financial position will help you to come to a compromise.
Some potential options include:
- Pay partial rent and TMI to the Landlord
- Pay TMI only and ask for a rent holiday
- Defer rent entirely for a predetermined period and pay a percentage of amounts due over a defined period (e.g., two years)
- Defer Taxes and pay Partial Rent
- Negotiate agree on a longer term lease at a lower rate
- Create a short term agreement that expires when normal business operations resume (e.g., the State of Emergency is lifted).
However, we feel that it’s important to be cautious about anything making any long term and firm commitments. No one knowns exactly where this is headed, and whether it will clear up in 60 days or 600 days is completely unknown.
Should I work with my lawyer?
It’s important to get legal advice during this time. If possible, have a lawyer review your lease. Regardless of whether you choose to engage your lawyer, we recommend that you avoid escalating the situation and maintain a personal touch to remind others that peoples lives and families are at stake.
Should I try to sell my business?
If your business is in a strategic location, it may be a good time to sell it and absolve yourself of ongoing financial obligations in the future. When a client approaches us looking to sell we provide them with not only an opinion of value but also our candid opinion on the likelihood of a sale in the short term.
Do you have any other tips and advice?
- Whether or not your lawyer is involved, we recommend that you preface all communications with the following term clearly state in the email or letter: Without Prejudice
- Focus on negotiation over confrontation
- Protect yourself and your business assets to the best of your ability.
As rent due dates are fast approaching, speaking and approaching your landlord is becomingly increasingly important. The Government of Nova Scotia has produced a rent deferral template that can be easily leveraged by businesses. See the following templates below:
If you have more questions about how to approach and speak with your landlord during the COVID-19 pandemic, CHI Real Estate experts will be hosting one-on-one 30-minute virtual consultations on April 1, 2020. Book time with CHI experts: Ori Grad or Mark Parmegiani.