Broker Check

Tips for Reducing Occupancy Costs in Times of Crisis

| July 07, 2020

In these uncertain times, I understand that running a small business has added challenges. I am always here to help and there may be some steps you can take to better manage your expenses. Here are some good tips for reducing occupancy costs in times of crisis.

Know Your Options

Mandatory retail and office closures coupled with the complete or partial shutdown of operations have put a renewed focus on occupancy costs for small and large businesses alike. Whether you are facing the strains of meeting current contracts, need to shed excess office space, or need relief from lower rents, the following tips can help you renegotiate terms or seek assistance that can be a lifeline for managing expenses.

  1. Review Your Office Lease(s)
    While every lease is unique, yours may have provisions or clauses that relieve you (or your landlord) from specific duties or obligations. Look for language concerning: Force majeure clauses that do not have monetary obligation carve-outs; Abatement and other rights resulting from loss of access to the building or cessation of landlord services; Condemnation/casualty provisions if drafted to extend to a loss of access, especially if tied to government action; Quiet enjoyment rights (this may be assumed without need for specific language); Your lease security deposit, letter of credit or guaranty; Operating expenses such as utilities, janitorial services, and parking to determine if you can be relieved of payment if they are not being provided, used, or have been or need to be scaled back.

  2. Evaluate Your Insurance
    Examine your business interruption insurance policy. Although pandemic outbreaks are typically not covered, and there are likely to be hurdles to obtaining coverage, some states are considering legislation that would force insurers to pay COVID-19 business interruption claims.

  3. Stay Informed on Aid
    Keep abreast on if and how the federal and state governments will ultimately weigh in on COVID-19 rent relief, and follow any changes in legislation relating to commercial leases. Accounting and law firms are a good source of information to learn if and how the government and courts will ultimately approach these issues.

  4. Talk with Your Landlord
    Approaching your landlord with a clear, compassionate, and consistent request for relief under any of the above measures—or drawing on your own negotiations—will be the simplest, and likely most economical, approach. Before doing so, however, it is important to take steps to preserve your rights by giving necessary or advisable notices pursuant to your lease. You should also consider how your communications may be viewed by an arbitrator if things aren't worked out amicably or if word gets out to others.

Estimate the duration and amount of rent relief you feel you need, and then:

  • Call your landlord and explain your situation citing that you have carefully examined your lease, insurance coverage and COVID-19 legislation.
  • Explain compassionately that you understand they have bills to pay too, but that this is a global crisis and "We are all in this together." Be sure to also listen.
  • Ask what sort of rent relief they could provide for a specified number of months.

If they put the ball in your court to make the first offer, you can, based on your situation:

  • Ask for rent abatement for a certain number of months in exchange for adding equivalent or slightly greater time to the end of your lease.
  • Ask for deferred or reduced rent to be paid back gradually over the remainder of the lease.
  • Ask for a certain amount out rent reduction (50%) while the building is completely or partially inaccessible to you.

Please do not hesitate to contact the office if you have any questions. Sending well wishes to you and your loved ones!

For discussion purposes only and in no way represents legal or tax advice. For advice regarding your specific circumstances, the services of an appropriate legal or tax advisor should be sought.