Rent Negotiations

During these challenging and uncertain “covidious” times landlord and tenant negotiations have been at the forefront of many conversations in both the commercial and residential contexts. The reality is at the core of this conversation and negotiation is that these relationships are controlled by landlord and tenant law but flexibility on the part of both landlords and tenants is key to achieving an optimal outcome. Having to wear both hats during this time as well as act as a mediator or middle man in some instances has provided a unique and informed perspective as it relates to the various ways these negotiations can proceed.

The flexibility that can be offered in each scenario is directly correlated to the individual landlord’s and tenant’s situation. It is important to understand the various perspectives and scenarios surrounding this very high-tension, sometimes emotional and delicate negotiation:

Potential Landlord Parameters

· Status of Mortgage on the property

· Specific Expenses associated with the property (maintenance, property insurance, property and other taxes)

· Owner-managed vs. Management Company

· Financial contribution of rent to overall earning capacity

· Potential for attracting new tenants

Potential Tenant Parameters

· Loss or significant reduction in revenue

· Prioritization of all expenses

o Residential: Food, medicine, transportation, etc.

o Commercial: Salaries, Taxes, inventory, etc.

· Uncertainty re continuity of business, in particular for businesses completely closed

· Little or no alternatives for accommodation for residential tenants

These lists are by no means exhaustive but put some perspective on the potential position each party is operating from. With so many moving parts, it is clear to see that negotiations surrounding rent does not have a “one size fits all” answer. The negotiations should take each party’s situation into consideration.

In addition to parameters noted other parameters such as the length of the relationship and the historical performance of the tenant as well as how the rules and regulations (COVID-19) have impacted the specific tenants should be taken into consideration during the negotiations. Some businesses were prohibited from operating, while others were operating at close to full capacity. The employees’ revenue generated from these businesses in some cases are directly correlated with the income earning potential of the companies they are employed by.

The waiver or reduction in rent is not a right of a tenant or an obligation of a landlord to grant, though it may make for good business sense. The most important right of a landlord, as guided by the lease, is the timely payment of rent. While for a tenant is peaceful use and enjoyment of the property or space. In many cases, only a Force Majeure clause may result in the automatic adjustment to the contractual obligations of the parties. “A Force Majeure clause is a provision in a contract that excuses a party from not performing its contractual obligations that becomes impossible or impracticable, due to an event or effect that the parties could not have anticipated or controlled. These events include natural disasters, floods…” (https://definitions.uslegal.com/f/force-majeure-clause/). It is possible to interpret the current restriction as a “Force Majeure”. Definitely a clause to consider for future leases if not included in current lease, with specific reference to pandemic or state of emergency.

If there is default by the tenant, due to an inability to pay or any other reason, the recourse of the landlord is to follow the provisions of the lease to request the rent. The failure to pay rent will usually result in the termination of the lease by the landlord through the issuance of a notice to quit from the landlord to the tenant.

This is where it gets very interesting; sometimes exercising your right is not always the best decision to make given the circumstances. There can be significant negative implications in trying to evict a tenant both commercial and residential (in particular residential) in challenging times such as these. If a notice to quit or eviction notice is served on a tenant who in turn does not vacate the premises, either by choice or due to curfew, the landlord is not advised to try to remove the tenant’s property as this may open the landlord to lawsuit for damage or loss of property. What does this mean in practical terms for the landlord? A difficult process to access and rent the property or space with judicial courts closed! Additionally, it should be noted that if these matters are presented to a judge who believes the parties should be able to reach agreement between them, the judge may refer such matters to mediation. In short, the process can be time consuming and expensive for all parties concerned.

In most instances regarding nonpayment of rent, the judge is likely to side with the landlord and issue a ruling for an eviction but will usually give the tenant time to vacate the space. It should be noted if a landlord serves a tenant with a notice to quit that no further payments should be accepted from the tenant until after the eviction process is complete as this will deem the notice to quit void.

This is by no means a basis for tenants to halt payments of rent without a dialogue or agreement with the landlord, as all advice would suggest the best way forward to be to agree on an arrangement taking both parties’ position into account. Additionally, it is advisable to document any alternative arrangements even if it is an email from the landlord to the tenant.

In conclusion as a landlord, a tenant and a middle man a variation of requests from tenants and responses from landlords to rent adjustments have been noted in both residential and commercial contexts including the following:

· Complete rent waivers assessed on a month to month basis and for a period reaching to the end of May

· Rents reductions up to 50% assessed on a month to month basis

· No rent adjustments at all where a 100% of rent is required with no consideration for adjustment

Additionally, tenants have given notice to vacate the property in the face of uncertain revenue streams and employment, which is difficult for any landlord as there will be a limited number of tenants endeavoring to enter into new lease agreements until a way forward can be established by the local and international powers that be. The key to success and achieving an optimal outcome is to be transparent with your situation, flexible with your thinking and focused on the big picture. The Golden Rule may be the best rule to apply to every negotiation “do unto other as you would have them do unto you”.