Negotiating lower rent for your business
Amid a pandemic and an economic slump, practice owners are wondering if they can negotiate their rent.
As the coronavirus evaporates revenue practice owners are scrambling to meet obligations. Rent is one of— if not the—largest expense they pay month-to-month. Business owners are in search of all sorts of ways to tamp down monthly costs. That includes the rent on their current leases.
Has the government addressed rent relief?
The federal and various state-and-local governments have sought to address this issue. However, progress has been piecemeal. There is no nationwide standard on rent for the vast majority of small business owners.
Various states and localities have issued rent and eviction relief in response to COVID-19. And in addition to the Paycheck Protection Program, the CARES Act included a 120-day eviction moratorium for properties that are part of government programs. Properties with federally-backed mortgages are also covered by the moratorium.
Speaking of the CARES Act, part of your Paycheck Protection Loan may go toward rent. However, at least 75% of the funds must be used for payroll. Spreading the remaining 25% between rent and other obligations may not cut it.
However, those measures don’t cover the majority of medical practices. Negotiating a commercial rent reduction is one option for businesses that are otherwise without relief.
How to ask for lower rent
Practice owners should discuss temporarily lowering or altering their base rent with their current landlords. Consider that landlords, like eye care professionals, physical therapists, chiropractors and other medical providers, are hurting. And losing a tenant could be devastating in the long run.
It’ll take a partnership to power through this. How to ask your landlord to lower the rent can be a delicate matter. After all, as we said: Your landlord is dealing with the pandemic as well. Do your research, understand your options and come to the discussion prepared.
Before negotiating with your landlord
There are several steps you should take before you reach out to your landlord. You should approach the negotiation with some understanding of your options. From there you can develop a plan that works for both your practice and your landlord.
Check your lease agreement first
Your lease agreement probably doesn’t mention COVID-19 specifically. But it may discuss how a disaster or unprecedented circumstances can affect your rent obligations. Your agreement might include a so-called force majeure clause that grants lessees rent relief for certain situations.
Your lease agreement may also delve into tenant rights in your area. You should read through these before any lease negotiations. In addition to your lease, your state may have laws or emergency measures that will apply.
Review options for rent relief
Before you ask your landlord about rent relief look into how these agreements are typically structured. It will be better to come to your landlord with a plan than to simply ask for help. It shows you’re willing to reach an accord that works for both parties. One or more of the below options may already be outlined in your lease agreement.
Rent abatement refers to the reduction or suspension of rent while a property is unusable. In normal times, landlords are open to rent abatement discussions during lease negotiations because such clauses are attractive to tenants.
A down economy—such as the one we’re staring down—is another reason for a discussion about rent abatement. In this case, it may help your case to prove you’ll invest money saved via rent abatement into your business. For example, show your landlord that you’re investing in telehealth or in outfitting your practice for emergency services.
Rent deferral is similar to rent abatement. However, you’ll be on the hook for the months you miss. You will be obligated to cover the deferred sum in the future. For the landlord, this makes it more attractive than rent abatement.
These agreements usually require the tenant to still cover a portion of rent while the rest is deferred until a later date. Landlords may be more open to this option than rent abatement because it ensures that ultimately payments for your lease term will be covered in full.
If both of the above are no-goes you might be able to negotiate a short-term reduction in rent. Explain that you’re still able to cover part of your monthly obligation. Some income is better than none in this case. Your landlord may see the benefit in keeping a tenant for the long term even if it means taking a hit now.
Other options to explore
You can get creative with your rent relief agreement if the above choices don’t work. For example, you can ask your landlord to apply your security deposit to the next rent payment you owe. The risk here is that you won’t have a security deposit to apply to potential damages.
You might be able to even offer your landlord certain services at a discount! That is if you can swing it. This will be easier for out-of-network or cash pay practices that aren’t restricted by insurers’ fee schedules.
Check what your state or local government says
You may live in an area or state that is offering some form of rent relief. Look into this before speaking with your landlord. You may have enhanced tenant rights during the public health emergency. That will be important to take into any rent relief discussion.
There’s a long list of states offering some form of rent assistance or relief during the pandemic. Make sure to double-check how lawmakers in your area are helping renters affected by the virus.
Negotiating a rent relief agreement
You’ll have to determine which of the above choices—or one not mentioned—is best. Find an option that works for both parties. After you’ve reviewed your lease agreement and the above options you’ll be prepared to approach your landlord about rent relief.
If you’d like, it’s alright to start with an email to your landlord. Here are some tips to write an effective email:
- Illustrate how your practice has been affected by the coronavirus pandemic. Make note of the financial impact.
- Make clear that you understand the tenant-landlord relationship as a partnership. Show you’re willing to work with your landlord on an agreement.
- Explain that support from your landlord now will ensure your practice can continue serving your community later.
Additionally, we put together this template you can use to start the discussion. Tweak the language as you see fit to match your practice’s unique circumstance.
Coronavirus rent relief email template
Dear [landlord or point of contact],
The COVID-19 pandemic is turning into an economic crisis and it’s affecting our community. [Practice Name] has suffered significant losses due to the sudden impact of the stay-in-place orders necessitated by the coronavirus.
I appreciate our partnership and am reaching out to you in immediate need of rent relief in the form of [your proposed rent relief].
My practice makes an important contribution to our community’s wellness and plans to continue doing so in the wake of this crisis. Your support will help us endure and continue serving our community.
Resuming your practice
This will end eventually. When it does you’ll need a business plan to remerge from this health crisis.
You should make it clear to your landlord that you have a strategy for reopening. And propose when you plan to do so—in accordance with state and federal guidelines. The rent relief you secure now will help you ensure your practice can continue serving patients.
In the meantime, review your strategy for the coronavirus stay-in-place order. What can you do to improve your practice's financial health or continue generating revenue? For example, you can run an accounts receivable analysis. Or, if you haven't already, you can set your practice up for telehealth appointments.
We're operating in a new environment, but there are still things you can do to ensure your practice thrives in the future. The rent relief you secure now will help you ensure your practice can continue serving patients.