Workouts. This article addresses the legal and enforcement landscape concerning eviction of commercial tenants who were, or will be, unable to meet their lease obligations. However, we know that most landlords are focused on keeping tenants, not evicting them. The willingness to work with your tenants to reach deals during the current crisis may appear, on its face, to be altruistic; the reality, however, is that often it is just as necessary for landlords to work with their tenants out of self-preservation. To that end, we offer the following guidance and hope you will find it helpful in dealing with troubled tenants.
We know that most landlords reading this probably already have reached out to their tenants and are proactively working to negotiate deals to help guide them through the changes in their business and to maintain open lines of communication. This is important because communication now, along with an acknowledgment of what your tenants are facing, will make your tenants more likely to continue to communicate with you throughout their struggles. The more you know, the better you can prepare. There is nothing worse than surprise.
Be flexible. It often is said that “necessity is the mother of invention.” We anticipate that workouts between landlords and tenants in the time of COVID-19 will lead to creative solutions – both financial and nonfinancial – that strike a balance between tenants’ reduced revenues and landlords’ need for cash flow. There is no one-size-fits-all approach, so it is important to listen to your tenants’ requests and be clear with them about ways in which you can, and cannot, have flexibility in reaching a workout.
Review leases. While this guidance applies generally, it applies most forcefully to inherited leases. Before you begin negotiating a workout, carefully review your leases to see what unexpected exposure you may have.
As with most other aspects of business and life during this time, things are uncertain. Professionals are available to provide you with advice, guidance and expertise to help you navigate the uncertainty and make the best decision for your business. While we wait for life to return to normal, we ask that you stay safe, healthy and optimistic.
This article was co-authored by Vikrama S. Chandrashekar, David A. Laird, Thomas M. List, and Merc Pittinos.