Can't Pay Rent During COVID-19? Here's How to Negotiate

Real estate experts are recommending property owners question the legal basis for tenants to not pay rent due to the COVID-19 pandemic, and that tenants come to the table prepared to negotiate on terms for future payments.

In a recent report from NAIOP, those involved in similar negotiations said some tenants are citing the pandemic—which has forced business closures and other significant economic hardships—to invoke the “force majeure,” or “act of God,” clause in their rental agreements. That clause can allow parties to renege from an agreement due to circumstances beyond their control, frequently events like natural disaster.

Other tenants have cited the pandemic otherwise impacting their business operations in order to not pay rent, according to the report by Shawn Moura, the director of research for NAIOP. The report states that it has been a “significant problem among retail tenants,” but has sometimes happened with office and industrial tenants as well.

George Pincus, an attorney with Stearns Weaver Miller Weissler Alhadeff & Sitterson, said property owners can dispute the legal basis their tenants are using to refuse to pay rent, like the use of the force majeure clause. He also said owners should clearly state they are not waiving any rights or remedies available to them under the terms of the lease agreement or the law.

“A standoff with tenants could result in tenant default and eviction, or it could lead to more constructive negotiations between tenant, owner and lender,” the report reads.

For tenants, Jonathan Kingsley—the executive managing director for office and industrial services at Colliers International—said they should come to the table with a lease extension or a plan for repayment. Otherwise, they may risk sabotaging talks with their landlords.

He said tenants “who may need help to ask owners for assistance that is within reason and is consistent with terms that other tenants in their local market have received,” according to the report.

Brandon Bergman, the president of 2000 Development, said some national tenant representatives “have been overly aggressive in their demands and negotiating tactics and have subsequently missed out on advantages they could have obtained through an abatement and lease-extension package,” the report states.

Still, property owners should be on the watch for COVID-19 regulations on rent payments, some of which give tenants more leverage in negotiations. Some localities, like Washington, D.C., are requiring landlords to let tenants defer their rent for now and pay it back in a set plan.