Now is the time to talk with your landlord and your commercial real estate tenant rep if the financial hit because of COVID-19 jeopardizes your Tucson commercial lease.
Your contract covers what happens if you have to bail on your commercial property lease or can’t meet your obligations. But there may be room for accommodation if you can’t make your rent in the next few months.
Remember, your landlord doesn’t want to lose you either over the novel coronavirus disruption. There will be great costs to maintain an unproductive commercial space and additional costs to then find a new tenant once the crisis is over.
When you signed the lease, you made a promise. Walking away from that promise has negative consequences. A willingness to work things out can have good results.
CONSEQUENCES OF BREAKING A LEASE
You likely will have to pay the remaining rent if you break a lease regardless of the reason. If you guaranteed the lease, the landlord has cause to collect the unpaid balance. You may face a penalty, often losing your security deposit.
You could face the cost of retaining an attorney to deal with the inevitable lawsuit the landlord will file to get you to make good on your contract. And that event can drag on as courts close for the duration of the epidemic.
RENEGOTIATE YOUR LEASE CONTRACT
Here’s where your tenant rep like Commercial Real Estate Group of Tucson becomes your valued partner. Brokers like me can review your contract to see what accommodations already are available. I can help mediate adjustments on the lease contract with your landlord and agreements with your financial lender, including:
- modifying the lease agreement;
- negotiating for a short-term lease amendment; and
- requesting rent forgiveness or reduction.
If your lease is close to expiring, working out a compromise could lead to a lease extension or even a new lease with attractive terms.
If your lease is in effect for several more years, consider a “blend and extend” strategy. You can gain more favorable lease terms—for instance, lower rent rate or fewer rentable space—in exchange for an early contract renewal and extended lease length. You immediately reduce your Tucson commercial property costs. The landlord is able to keep the property occupied.
IF THE WORST HAPPENS
If you have no alternative but to break your Tucson commercial lease, continue to negotiate with your landlord to lessen your costs.
Terminate your tenancy. See if the landlord will terminate your tenancy so that you’re no longer liable for future fees. Get all of your landlord’s actions in writing, including the agreement that you are released from your lease and when the landlord signs a new lease with a new tenant. Hold on to the paperwork for at least three years.
Consider subletting. If your lease allows you to sublease with the landlord’s approval, look at this option. It will take a while for you to find another tenant, which, in these uncertain times, may want a discount to take over your space. That means you’ll have to pay the difference between the sublet rent and what you owe the landlord. You are still responsible for the lease payment detailed in your lease contract.
Help find a replacement. Helping the landlord find a replacement helps you, too. The sooner the landlord can find a replacement tenant, the less rent you’ll have to pay. Ask your landlord if you can find a replacement tenant in exchange for a release from your financial obligations.
To learn more, visit www.commercial-real-estate-tucson.com.