As rents collapse, commercial landlords work to renegotiate

To survive the worst economic downturn since the Great Depression, companies in the Metroplex and all across America are trying to renegotiate their leases. Some are flat-out refusing to pay. Many simply cannot afford to pay. Others have to lower their overhead to survive.

Even strong companies are trying to work out better deals with on their offices and rental premises, according to a recent review by the New York Times.

Commercial landlords are faced with pressure from both sides. The pandemic may have caused tenants to be unable to meet their rents, but the landlord’s lenders haven’t backed off. They need income, and they need it now. How best to salvage the situation?

Now may be the best time in years to renegotiate your lease. With landlords losing tenants, those that remain are in a strong financial position. And, it may be reasonable to argue that your current rent no longer reflects the market rate.

It is no longer just the lockdown affecting certain tenants. At this point, the immediate impact is becoming longer term. Trends were already dire for shopping malls, but now it is unclear how other commercial real estate will fare in the medium-to-long term. Will we see a dramatic downturn in the need for office space as companies transition permanently to having their employees work from home? Or will offices actually grow larger to allow people to spread out?

Nobody knows, and that means the market is wide open for renegotiation. Your commercial lease is probably open to negotiation. Shouldn’t your landlord share in the economic pain of the downturn?

In May, according to the Times, about 19% of commercial loans backed by hotel properties were over 30 days past due. For all retail properties, the past-due number was 10%. Office space was trending better, with just over 2% of loans past due, but that could change quickly if companies continue to struggle as the economy reopens.

This crisis can be an opportunity to change the terms of your lease. Talk to a lawyer who handles commercial lease renegotiation.