The pandemic has been difficult for people and small businesses alike. The inability of small businesses to operate normally has created a ripple effect on the commercial real estate industry. Rent payments from tenants determine their landlord’s income. When tenants are struggling to pay rent, landlords will struggle to pay their mortgages, operating costs, taxes and more. Here are seven important things Arizona commercial landlords should be doing in the pandemic to give their business the best chance at long term success.
One: Communicate with Your Tenants
Good communication is more valuable now than ever. If you are a commercial landlord in Arizona right now, it is worthwhile to take some extra time to understand your tenants needs. In the long run, flexibility in the short term might be the difference between losing a valued tenant and keeping them. This does not mean you have to immediately give them a break on rent. It could be as simple as minor adjustments at your discretion, which will help your tenant’s operations run smoothly for the time being. By learning about your tenant’s business, you will also determine whether they have a viable business going forward.
Two: Explore Creative Ways to Work with Tenants
If any of your tenants are behind on their rent payments, it’s a good time to be proactive if you hope to keep them as long-term tenants. There are a few simple concessions that could be made in the interest of finding a viable solution for all parties. Obviously, most tenants would prefer a reduction in the rent or an abatement (or forgiveness) of some of their past due rent. If you have not been in communication with a tenant that’s behind on rent, they are likely to approach you with one of those two proposals.
Three: Commercial Lease Deferral or Loan Conversion
Landlords can also propose a deferral on past rental payments, which allow the business to pay their past due rent at a later date. With the past due rent payable at a later date, businesses can focus on paying present rent and costs without having to go to extreme cost-saving measures. With a deferral, tenants could either pay a little more month-to-month or could pay a lump sum at a later date.
Similarly, you could convert your tenant’s past due lease payments into a loan with a structured payment schedule as well. While tenants will have time to pay off past due rent, you as the landlord may collect interest if an agreement to that effect is executed properly.
Four: Subletting a Commercial Lease
If the business can no longer afford rent payments, but they are not going out of business and are looking for a reasonable solution, subletting the space to another tenant may be an option. To see if this option is feasible, please check the terms of your lease. With current market conditions, one may be hard pressed to find the perfect tenant. However, by subletting, you potentially create a win-win-win solution where payments can continue in full and all three parties can operate successfully.
Five: Explore Arizona Landlord and Tenant Assistance Programs
The state of Arizona did have some smaller assistance programs geared towards landlords. While many of those programs have been nearly exhausted in Arizona, it is still worth exploring all the various state and federal assistance programs that have been enacted during the pandemic. From deferred liquor license payments to electricity/utility assistance to shared work unemployment benefits, there are programs that could assist landlords, or their tenants, that are still accepting applications. Taking the time to review what assistance is out there could make the difference between your tenants losing their business and them being able to survive in the short term.
Six: Assist Your Tenants in Adhering to State and Federal Safety Guidelines
While it may not have been your place to offer much assistance in the operations of your tenants’ businesses up until now, there are more complications and stress on small to mid-sized businesses than ever before. There are many simple ways you can offer some assistance, like exploring whether your tenants could get better deals by aggregating orders for items like masks and hand sanitizer. You might also find ways you can drive new business to them or help them explore ways to offer slightly different services within the current restrictions. Maybe some small changes would allow a restaurant to improve their curbside pickup options or allow a business to provide in-store services in the safest possible way.
Seven: Get an Experienced Arizona Commercial Real Estate Attorney
Commercial landlords are going to be experiencing several unique challenges for the foreseeable future and there is no guarantee their current tenant’s business model will return to normal any time soon. It’s more important now than ever to have an experienced commercial real estate attorney representing your real estate business so that you can explore all the ways to avoid or mitigate disaster.
Most of your tenants have probably been reliable businesses up to this point and it can be a difficult process to figure out how to deal with them suddenly not being able to pay their rent. Our firm can help your pursue win-win solutions wherever possible, while making sure that your real estate business has the best chance to prosper in the long run. Contact us today at 602-533-2840 or make an appointment online for an initial consultation.