Landlord Rent Relief Checklist
By Jeff S. Pitcher and Todd M. Phelps
In these unprecedented times where the businesses of many tenants are affected by the COVID-19 virus, landlords may be approached for rent relief. This short checklist is a reminder of some of the issues to be addressed when considering and/or granting such relief.
Is A Pre-Negotiation Email Or Letter Required?
- Emphasis on there is no deal until there is a written document executed by landlord and tenant and neither party is bound in the interim
How Rent Relief Can Be Underwritten and Documented?
- Obtain updated financial and operating statements; evaluate security deposit, letter of credit or other security
- Free or reduced rent for a short period; consider an equivalent extension of the lease term
- Free or reduced rent for a short period with a re-amortization of the relieved rent in later years
- Does the free or reduced rent amount bear interest?
- Recoup free or reduced rent through profit sharing or percentage rent methods
- Condition free or reduced rent on tenant’s participation in federal/state assistance programs
Is Lender Approval Required?
Loan issues to consider:
- Is there a debt to income ratio or other debt service coverage metric that could be triggered by the rent abatement?
- What financial information of landlord and tenant operations are required to be given to the lender?
- Are tenant estoppels or other documents required?
Additional Key Questions to Consider:
- If the tenant later defaults, can the rent relieved be included in the damages claim?
- Is there rent loss insurance coverage?
- Is there a continuous operation clause that could be relaxed to achieve the rent relief?
Other Issues Surrounding COVID-19 Relating To Leases:
- Is there a claim of breach of quiet enjoyment due to landlord's action/inaction?
- Has a force majeure event occurred as a result of the pandemic?
- Does the lease contain a rent withholding clause if a landlord is not providing required services or the tenant cannot access its premises?
News & Insights