Expect Rent Collection Challenges Through the End of the Year

For commercial property owners, the rent collection issues are only beginning. Lawyer Mark Leverette expects commercial tenants will have payment issues through the end of the year, at least. If a second wave of the pandemic hits, it could be longer.

“Considering the impact that we have experienced in the economy so far, it is expected that most acute and evident rent issues will affect most business for the remainder of the year,” Leverette of BPM LLP, tells GlobeSt.com. “If there is a second wave of the virus, including another quarantine lockdown, the problem could extent through 2021. The “Wildcard” is the effect of an economic downturn, and that will be an industry-by-industry analysis suited for a well-versed economist.”

Future rent collection trends will largely depend on the comfort of consumers. If consumers return to shops immediately, rent collection problems will also recovery quickly. “Much of the ability to rebound will be micro economy based and related to the returning foot traffic,” says Leverette. “All property types and the related tenant business forecasts will require insightful financial analysis and an overlay of an economic forecast.”

Government rent relief initiatives have focused on apartment renters rather than commercial renters. “Government relief programs to help tenants and landlords deal with eviction issues appear to be fairly one-sided at this time, as the tenants are receiving significantly more protections,” says Leverette. “Most of these programs have automatic provisions to allow for payment deferrals from tenants; however, compliance documentation needs to be provided and/or tracked.  Programs are different based on your specific jurisdiction.”

Eviction moratoriums for commercial tenants have been the only protection for commercial tenants, but simultaneously, these moratoriums place a burden on the landlord and simply rack up rent bills for the tenants. Markets throughout the State of California have implemented commercial eviction moratoriums, and at the state level, there was some legislation aimed at helping tenants, although it continued to place the burden on landlords. “Although recently failing to be approved, SB 939 would have instituted a state-wide moratorium on the eviction of commercial tenants who have been adversely affected by the COVID-19 pandemic, and provided strict timelines on renegotiations to protect tenants.”

Throughout the process, most legal experts have encouraged landlords to negotiate terms with tenants to defer or forgive rent payments as possible. “It should be noted that landlords are always incentivized to sit at the table to renegotiate the best outcome for the parties, as both parties stand to lose if the tenant moves out,” adds Leverette. This law was widely opposed by many groups, but there is still a likelihood that a similar law may be brought back to our legislature.”