Attorney: Rent Relief Should Be Based on Market Value

As landlords develop rent relief plans, they should make sure that they understand the market value first. Crosbie Gliner Schiffman Southard & Swanson real estate attorney Sean Southard says that the landlord should evaluate relief requests based on that value.

“The landlord must have a sound understanding of the value of the subject premises in the particular marketplace,” Southard, a partner at the firm, tells GlobeSt.com. “If landlords create a uniform system to evaluate tenants’ requests for relief and determine the need is bona fide, then landlords may have a strong self-interest in facilitating a successful restructure—one in which the landlord is not committing good money to an ultimately failed outcome.”

The valuation determination should be made alongside seasoned market professionals. “Some landlords form an internal committee of leasing agents, property managers and financial analysts as part of this evaluation system,” explains Southard. “The criteria can include credit checks, assessment of inventory levels and review of tenant’s business plan.”

In addition, landlords could approach tenant relief requests as a new lease proposal, and run the analysis that way. “Other landlords may have a policy of treating a request for rent relief no differently than a new tenant proposal, and therefore require the tenant to deliver information such as a business plan, personal and business financial information, and gross sales reports,” says Southard. “Often, when faced with such information requirements, tenants without a bona fide request will simply drop their request.”

This process should be consistent and analytical, including understanding how the tenant is funded, if they are creditworthy and the likelihood of bankruptcy. “Landlords should have a uniform method and system in place for determining if a tenant’s request is bona fide and sufficient to actually assist the tenant in returning to health,” says Southard. “Landlords must know the tenant and its business, both financially and otherwise. If the tenant has multiple locations, the landlord will need to know how the relief requested by the tenant relates to the tenant’s larger plan to keep itself viable. The take away here is that landlords must be able to evaluate a tenant’s business and its longer-term prospects.”