With the advent of the COVID-19 event, it’s become clear that a number of residential and commercial tenants are not going to able to pay their rent in a timely manner.
While there’s been a lot of ink spilled about residential tenants, very little has been written about commercial tenants and what has been proposed is questionable.
For an example of this, see this article from the Center for RISC (“Radical Innovation for Social Change”) from the University of Chicago. Their “radical innovation” is to simply put all of the shortfalls on the landlords. See:
https://centerforrisc.org/lease?mod=article_inline
Their proposal is that landlords should just reduce rents for an indeterminate period of time. However, my experience has been that lenders still want to get paid in full; while some lenders are willing to give a landlord a “payment holiday”, they still want to have the principal paid (with interest) later on. Therefore, if commercial property owners give commercial tenants a rent holiday while still paying the lender in full, the only one who comes up short is the landlord. That will lead to default and eventual foreclosure and this is an event that in my experience, benefits no one (be it tenant, landlord, or lender).
This sort of proposal is why academics should “stay in their lane”; I’ve studied real estate and finance for 20+ years and so I try to limit shooting my mouth off on topics I may actually know something about.
It would seem to me that a much more equitable and sustainable solution is to agree to temporarily reduce the rent, but insist on repayment of the reduction later on when a business has recovered. That’s what I’m doing with my commercial tenants; I understand there’s pain on their side, but the burden needs to be shared and especially so when my lender still wants to get paid. I’m not saying that we should charge these tenants interest and profit off their misfortune, but we should be repaid at least for the shortfall.
For example, this is what I’m seeing out there in terms of language:
The only real issue for me when negotiating this sort of agreement is that every tenant is different. If you’re a “non-essential” business such as a nail salon and you’re shuttered, it’s perfectly reasonable that you’d ask for some help. As for businesses that are still open (and maybe even doing better than usual) such as a liquor store, please continue to pay on the 1st of the month.