Apr 5, 2021 | The Practical Real Estate Lawyer

Property owners, tenants, and their attorneys and other advisers have lately spent a lot of time negotiating lease amendments and waivers to give tenants breathing room in today’s COVID-19-driven shutdowns. These negotiations typically deal with the same economic issues again and again. In most cases, what the tenant wants is a partial or complete abatement of rent to offset the tenant’s loss of business.

Commercial Lease Amendments in the Age of COVID-19: Making Them Work in Eight Steps - By Joshua Stein - hosted by ALI CLE

Sometimes, the parties agree to defer rent rather than abate it. This doesn’t help the tenant much, unless repayment of the deferred rent begins far in the future and then continues in small installments for a long time after that. From the owner’s perspective, though, a deferral might just as well be an abatement if the tenant is gone, and beyond the owner’s reach, by the time the deferred rent comes due. The burden of having to repay the deferred rent might itself drive an earlier departure.

Commentators sometimes suggest that tenants should, during the pandemic, pay only enough rent to cover the property owner’s debt service, taxes, and operating expenses. They argue that the owner should suck it up and forgo profit during the pandemic. That’s a nice heartwarming suggestion. In the real world, though, especially in large cities like New York, an owner needs nearly all of its revenue just to stay above water. Owners don’t just own real estate and get free money. They have expenses— lots of expenses — a fact often overlooked by the “cancel rent” crowd and the legislators who listen to them.

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