In the wake of COVID-19-related shutdowns, many corporate landlords and tenants are finding themselves in difficult positions. Tenants may be short on funds due to business closures or limitations, and landlords must decide how to handle non-payment.
New evictions had been suspended for several weeks due to Governor Polis’s order, but they can now be initiated again. However, eviction may not be the optimal solution for either party. Tenants may be back in business and just need time to re-establish their cash flow. Landlords may have good tenants that they would like to find a way to keep or have limited prospects for re-letting the space. For many reasons, options besides eviction might be best.
If the landlord has strong confidence in a tenant’s business, they could even propose taking an ownership interest in the business. They could forgive unpaid rent and/or reduce or forego future rent in exchange for a share of the business. This may not result in immediate cash flow, but it could result in greater returns in the long run. Depending upon the specific situation and landlord/tenant relationship, the lease could also be renegotiated in a number of ways. Landlords might agree to offer tenants relief such as reduced rent, temporary rent abatement, an increased tenant improvement allowance, or rent based on a percentage of the tenant’s income. In exchange for these considerations, tenants may agree to new terms that could be beneficial for the landlord.
For example, the lease term could be extended. If the tenant has been reliable and is likely to recover long-term, the landlord may welcome the opportunity to keep their rental space occupied for years.
The landlord may also benefit from changes to the lease that make it easier for them to end the lease or recover the premises if the tenant is not able to meet the requirements of the new lease. Other potentially beneficial measures could include a stronger guarantee or “estoppel and release” language, which offers the landlord some protection from future claims by the tenant.
There is also the possibility of reducing the square footage being leased.
If the tenant has downsized staff or altered their operations, their space needs may have changed. Depending on the space configuration, this could open up a portion of their space to be leased to another tenant. Allowing sub-leasing may also make sense depending on how the space is used and configured.
Sometimes eviction can’t be avoided, but in other cases, creative negotiations may provide an alternative solution that benefits both parties.