In Lieu of Rent Some Landlords Allow Tenants to Purchase Services From Them

When a retail tenant defaults, usually it’s time for them to go. “By the time they are at the stage of default, the landlord-tenant relationship is pretty fractured, and the landlord often feels like they would rather roll the dice with a new tenant,” says Steven J. Solomon, a Miami-based managing shareholder at the law firm of Gray Robinson.

Usually, that landlord is working off of a list of companies that can take over the troubled tenant’s space.

But these aren’t normal times.

“Landlords don’t want to lose tenants,” Solomon says. “They’re not anticipating this to be a good time to replace tenants.”

In the vast majority of cases, these tenants aren’t running into trouble because of mismanagement. This matters to many of Solomon’s commercial clients.

“That attitude is changing because the landlord is now saying this is not a tenant that runs a poorly managed business,” Solomon says. “The landlord understands why their tenants are not paying rent.” In many cases, landlords are looking into their toolbox for solutions when their tenants can’t pay. The negotiations can be a bit different depending on the type of tenant.

“If you’re a shopping mall landlord, your property has been completely shuttered, and your tenants haven’t even had access to their space,” Solomon says. “That is a little different than a strip mall.”

A strip mall may still have some restaurants open that are doing takeout and delivery. In theory, that property will need different sorts of relief than a store in the giant mall that has been forced to close its doors.

“My landlord clients are very actively negotiating lease amendments right now and working through a variety of different compromises,” Solomon says. “It [the amendments] often depends on the remaining term of the lease.”

Solomon says solutions can range from forbearance to a couple of months of reduced rents with the remainder being deferred. His clients may also tack on rent over the rest of the lease. By spreading payments out or agreeing to reduced rent for some time, the tenant can remain open and begin to generate some cash flow. “Let’s say the rent was not paid for April or May,” Solomon says. “They’re taking that amount and adding it in some increment that is palatable over the rest of the lease.”

In some cases landlords own real estate but also own operating businesses, and may lease space to multiple tenants in a related industry. For instance, a warehouse landlord may also offer logistics services, such as shipping and delivery. In the aviation industry, fixed base operators lease hangar and office space at airports, but also sell fuel and provide repair and maintenance services, according to Solomon.

This can offer additional places to negotiate.

“Certain types of landlords have been able to be a little bit more creative by saying, ‘Okay, we’ll agree to a deferral of one, two or three months or a discount we can make up on the back end,’” Solomon says.

“But in exchange, the tenant will be required to purchase particular value added services or goods from us (the landlord) exclusively or subject to a certain monthly minimum. This allows the landlord to provide a rent concession, while making it up on the ancillary services or good sold.’”