Searching for rent relief or considering rent deferral? If your company or small business needs rent relief now or will in the coming months, it’s time to consider your options and have a conversation about rent concessions with your landlord.
The state of commercial real estate has changed since the coronavirus pandemic began, but many tenants and landlords are still able to come to agreements should the tenant be unable to make rent.
Rent abatement is one way tenants and landlords can try to make things work in the midst of COVID-19.
What Does Rent Abatement Mean?
Rent abatement takes the pressure off of tenants who are behind on rent or unable to make rent. It suspends rent for a set period, while allowing the tenant to remain in the space. Sometimes landlords ask that tenants pay only a portion of their rent each month and suspend the remaining rent.
Rent abatement is often used in regards to natural disasters, major repairs, mold, initial modifications to the space, and anything that renders the property unusable for a time. Typically, rent abatement benefits tenants, so they don’t have to pay rent on a property they can’t access or use.
In times of crisis, you can negotiate rent abatement even if it doesn’t quite fall into one of the categories mentioned in your lease. Rent abatement can keep businesses from declaring bankruptcy and closing. It can also help tenants pay something to the landlord—even if it’s not full rent.
Forms of Rent Abatement
Rent abatement is not a get-out-of-rent-free card. Usually, you can view rent abatement as a postponement of the rent you owe.
As a tenant, you want to compensate the landlord for missed payments if you can. Rent abatement often involves extending the lease, agreeing to renew at a higher rent rate or formalizing a repayment plan for down the road.
Many tenants and landlords agree to abatements by extending the lease agreement long enough to make up for the payments the landlord would’ve received. Several months may be added onto the end of a lease, pushing abated rent payments to those months.
Let’s say you can’t make rent for three months. In this case, a 36-month lease becomes a 38-month lease as additional months are added to make up for three months of abated rent.
If the tenant and landlord do not wish to extend the lease, abatement can also be accomplished by creating a repayment plan. The abated rent amount would be divided and added in equal amounts to the tenant’s monthly rent throughout the remainder of the term. Essentially, this pays the landlord back for the missed rent payments.
Tenants may be able to strike an agreement where they pay only a portion of the monthly rent for a period. Once that period ends, similarly to the repayment plan, they would pay the remaining rent owed (the portion that was abated) during the remainder of the term.
A landlord may agree to use a tenant’s security deposit in exchange for a month’s rent. When financially possible, the landlord would expect the security deposit to be re-deposited by the tenant.
How to Ask for Rent Abatement
As a tenant, how can you ask your landlord to reduce or postpone rent? When tenants ask for abatement, they should present a plan to their landlord and demonstrate financial need. A winning plan needs to detail how the tenant will pay back abated rent in the future.
How Much Rent Abatement Should You Ask For?
When deciding how much rent abatement to ask for, remember that the landlord must pay toward their obligations as well. Tenants should bring a fair solution to the table.
Landlords have their own mortgage payments, along with paying for taxes, insurance, and property maintenance. They depend on tenant rent to make these payments. Less rent may mean the landlord must try to abate their mortgage payments as well.
Lenders may place restrictions on landlords, too, leaving them only able to abate what the lender agrees to—despite what the tenant proposes or what the landlord may like to offer.
Abating rent can help tenants stay in business. Sometimes all a tenant needs is to get to a place where they are more financially stable and able to cope with changing circumstances. If businesses can keep the lights on, landlords can keep their source of income, too—their tenants.
Contact Commercial One Brokers for information on the real estate market in Branson, MO.
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