How do commercial renters just shut down during this pandemic (tenants, clause)
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I know a couple restaurant owners that had to walk and all the equipment, furniture, and fixtures had to stay behind.
Restaurants were selling for pennies on the dollar, even “free” during the pandemic if you’d assume their lease.
Many restaurants were, and some still are, available fully furnished for free if you sign a new lease. There’s also a lot of asset sales of restaurant equipment going on.
Of course the landlord can go after you for the amount due on the remainder of the lease, but they have to make a legitimate attempt to lease it, in which case you’re free of liability. It’s in their best interest to because as the saying goes “you can’t get blood out of a turnip”.
It must be tough on a landlord where there’s no assets on premise, and/or they can be removed easily under the cloak of darkness. Maybe in these cases they’re required to secure the lease with another asset? My leases were always secured against my businesses and liquor license which were worth equal or more than the life of the lease at the time of signing.
How do the commercial tenants who want to close up shop do this without massive repercussions?
Is there clauses in the rental contract that allows this? What do LL do to protect themselves?
I dont know much about bankruptcy laws. Is it just as simple as declaring bankruptcy?
During this pandemic, many brick and mortar closed up shop. Do they just give up security?
Well if you are big enough (Staples) you just tell the land lord you aren't going to pay even while you are allowed to remain open as an essential business. It made the papers around here. the landlord was expected to continue services (snowplowing, maintenance, etc). As one landlord reported a Staples District Manager said 'go ahead and shut us down and put 30 people out of work'. A local followup reported that after the news got wide distribution Staples began paying slowly most of its rent but that other retailers were very far behind https://chainstoreage.com/whos-payin...t-staples-paid
In most states, commercial leases are nothing like residential leases. If the commercial tenant doesn't pay, the landlord can padlock the building, keep the tenant out, and seize all of the equipment and supplies inside the rented area.
Bankruptcy is granted by the courts and it requires a lawyer to do all of the paperwork and for a private citizen costs about $5,000 to have one done. I suspect that the cost for a business would be much higher. Sometimes bankruptcy is not about walking away. Often, it is about the courts assigning you a budget and making you pay what you owe in a more controlled manner..
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I'm in commercial real estate, and we offered a program to our tenants to help them, by skipping up to 3 months rent in mid 2020, payable in small increments along with the regular rent over the rest of their lease term. As it's turned out we have maintained a 93% occupancy, and only 2 tenants have defaulted on their payment plan most have already caught it up. Fortunately, we don't have many retail or restaurant leases, more industrial and office, with most continuing to operate. Even those where the employees went to working from home actually came out ahead with lower utility bills.
Commercial spaces inside downtown office buildings sometimes tie rent to the store/restaurant's revenue.
That is, the lease recognizes the symbiotic relationship between ground floor businesses, the landlord, and the upstairs office-space tenants. The ground floor tenants (coffee shops, drugstores) need traffic from the occupants of the building in order to make money. The landlord needs convenient amenities like shops to attract office-space tenants. So the landlord offers a lease that states the coffee shop and drug store pay, say, 10% of their revenue or $XXXX, whichever is greater. So their rent automatically decreased, and perhaps cost almost nothing, during the pandemic.
In office space, larger tenants may occupy multiple leases. That is, an office space may be one contiguous floor but it is actually made up of two or three leases, with no wall separating the spaces. But a tenant could easily throw up a wall at the lease line and 'give back' the remaining lease to the landlord. I came out okay this time but in previous recessions I've kept a roof over my head cranking out space plans and construction drawings for 'give back' projects. Not glamorous but it paid the rent.
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