During the first webinar the other night, I encouraged practices to speak with their landlords immediately (if they are renting/leasing) or their mortgage lenders (if they are owners). I’ve already heard from 4 practices who reached out to their landlords with positive results! It should be no surprise because a smart landlord wants to keep you in place.
I sought advice from a seasoned commercial real estate expert about how to approach your landlord and what strategies to employ and this is what he shared:
A lot of variables and no industry-wide rules of thumb.
The quality of the lessor and its financial strength are big factors. The lessor faces this problem with postponing or abating rent: the costs of operating (mortgage, taxes, utilities, etc.) are ongoing.
So, here are some ideas:
If the lease is on a triple net (NNN) basis, a lessee might ask for deferral of base rent while continuing to pay the NNN or CAM (common area maintenance) charges. Recommend that the lessee ask for a specific number of months of deferral, say four months. Depending on the relationship, maybe ask for six and negotiate less if needed. Also propose a repayment plan such as matching the number of months of repayment to the number of months of deferral (meaning double payments for a while). If too onerous, ask for eight months to repay. Avoid a discussion of interest. Have a letter agreement without mention of interest so as to avoid the usual lease provision which calls for interest clock to tic after so many days of non-payment. Obviously this is not covering the lessor’s debt or equity return. Suggest they talk to their attorney. If the lawyer is a real estate guy, or has one in the firm, he may have suggestions on terms and documentation based on local practice.
If the lease is a gross lease, i.e., all-inclusive (but for utilities), suggest asking for all the rent to be deferred. If the lessor pushes back, which he most likely will, then quickly offer to pay some fraction of rent, one-quarter to one-third, maybe. This type of lease is usually from an unsophisticated landlord and whose reaction is least predictable. Might have plenty of financial depth and likes kid docs so is easy to deal with. Or, he could be an amateur or a dummy who scares easily and takes it personally.
In both examples, a lot will depend on the existing relationship.