Your Lease and your Landlord during COVID-19 - Strategizing Next Steps and Starting the Conversation

Hi! Welcome to Marc Haine Live. Between you and me, that is the best name I could come up with for this live streaming event. I haven't had a— I haven't figured out quite yet to figure out how to brand these live streams. But I know that we are in a time when people need sorts of information. And that nothing can be more timely than trying to put tools and techniques together to help fight the pandemic crisis. My name is Marc Haine and I am a Service Expert and a Master of Experiences driving operational excellence by daring people to cultivate a generous attitude and lead with love and kindness first. I do this really by building empathy and experiences into processes. That's been my passion, whether it is customer experiences or employee experiences, building empathy and experiences into how we deal the day-to-day. You know, we are in such a tough time. And of course, this is— I don't even have to say it. I mean, everybody is sitting home right now or in limited stance in their business. And everybody is suffering. And it is a really, really tough time. And according to A recent Canadian Federation of Independent Business poll, they found that half of small businesses in Alberta are at least now partially shut down if they're not shut down altogether. Ontario and Quebec are heading to a complete shutdown of all non-essential businesses. And we are in a time where we are losing the ability to make money. And it is stressful as an entrepreneur. I know exactly what it feels like to wonder where your next dollar is going to come from. And when you think that 1 million small businesses in Canada have 20 employees or less, the cost to small businesses, the ramifications of business closures are absolutely immense. It is absolutely crazy what's going on. You know, when you think about all the studies that are out there right now, PricewaterhouseCoopers has been keeping a close eye on the data and they They say that perhaps 30% of small businesses with 20 employees or less might be out of business in 3 months. And as a small business owner, I know that you have all sorts of stresses right now. I mean, aside from the fact that you've had to lay off staff. And being a small business owner, you probably look at your staff as being like your family. And you have your bank and your creditor liabilities that you have to worry about. You're worried about income generation or lack thereof as it was. And now, you also have to be worried about your leased properties. What are your rights, obligations? What do you need to be doing with your leased property? And this can be one of the biggest concerns that can drive whether or not you can reopen when this pandemic is over. And really, it's about relationship building. It's about Understanding your obligations. So, since my last broadcast last Tuesday, I did my very first live broadcast. I've been inundated with questions about how business owners should deal with the property they rent from a landlord. And questions have really been abound. And I thought we should dedicate this episode to answering some of the questions and speaking with a subject matter expert. So, joining me today is a Senior Lease Consultant with The Lease Coach. Let's try that again. Rented lips. He's a Senior Lease Consultant with The Lease Coach. Jeff Granfield has over 14 years of experience coaching and consulting tenants on their new leases, on their lease renewals, lease assignments, and midterm rent reduction strategies or rent negotiations. And this really floors me because I didn't know there was any such thing as a midterm rent reduction negotiation. That just that phrase alone tells me that we are not necessarily hooped. Jeff is the co-author of Negotiating Commercial Leases and Renewals for Dummies. He's a frequent writer for industry publications and he's a regular speaker at events all across North America helping to educate tenants on the important impact a lease can have on the success of their business. So with that, I would like to introduce Jeff. Welcome so much to my second livestream event. It's great to have you come on board. I really appreciate you taking some time. Maybe you could start by just what is the word on the street right now? What are some of the things that you're hearing?

Well, thanks for having me first off. And the word on the street, as you can imagine what I do, I'm getting calls and emails Hourly, and I don't know if hourly is even the right description, you know, every multiple calls and emails an hour from tenants and clients and past clients asking me, what can I do? What's going on with leases? What are my obligations? What are my options? So I think the general word on the street is everyone, whether business owners or not, is just concerned, you know, financially. How are we going to weather this storm and what impact is it going to have on me and what can we do?

Right. So, the impact, I think some people with leases feel that because they have a lease, that there is absolutely nothing they can do in the context. And that in itself creates its own set of uncertainties.

Yeah, there are certainly people that are looking out there and going, I don't feel like I have any options. Third thing that often comes up is people asking and saying, well, do I have insurance that's going to cover this? And those are the questions, and I'll kind of tackle those a little bit one by one here. The very broad question, and I guess before I get into some of these specifics, is that One thing I'll say is that every single lease agreement is going to be different. You know, you may be on a landlord standard format, but landlord standard format varies from landlord to landlord, and there's hundreds and hundreds of landlords across the country. So every lease is going to be different to some degree, and you really should be talking to your advisor and reviewing your lease in detail to see exactly what your lease says, even on specific clauses like force majeure, which is one of the most common questions I'm getting.

Okay.

Speaking generally, most of those leases will have provisions that are very specific that indicate that if the performance of the contract or the lease can't be met, they're not in default of it. But the vast majority, almost all that I've seen, also have stipulations that is very particular on what these perils or events are or will have a very explicit provision that it doesn't apply to the payment of rent. So it comes down to performance of obligations. So if the landlord has a garbage contract and garbage contracts are— garbage pickup guys are on strike, they're not in default by not getting garbage picked up. You know, that's where those clauses tend to come into play. And most of them have very explicit exclusions to payments of rent not being applicable and that the rent is still due and payable. So that's kind of that first point in there on that question.

Okay.

Insurance is really not a point that I can speak to. I'm not an insurance broker, but from speaking with dozens and dozens of tenants, you know, that question of going, do I have insurance that covers this? Do I have business interruption insurance? Generally, the response I'm hearing from most tenants is that it's just not something that's contemplated within most business interruption insurance coverage, or there's components of it that don't make it applicable. You know, maybe your business isn't entirely shut down. You know, if you're a restaurant, you're still permitted to open with curbside pickup and drive-through and things like that. So that may nullify some of those benefits that you can get from insurance or clauses in your lease. So really where that leaves tenants is that they have to look to the landlord to discuss and engage and figure out a way through this because we're ever evolving daily, hourly. We're seeing new government notices, new directives, new policies.

Right.

But to date, there hasn't really been a lot of direct policy to commercial tenants. As recent as yesterday, Nova Scotia came out with government-backed funding for landlords to defer, I think it's up to $5,000 a month for 5 months, and basically guarantee that money for the landlord. So that's one of the few provinces that are starting to implement some of that. Maybe we'll see more of that across the country, but I think it's going to be I think that's going to be slow to happen, and I think most of the government policy is going to be indirect things such as wage subsidies and access to loan and access to capital and programs like that, but it won't directly impact the rent.

And so when you said the programs that the government's talking about, I do know that Restaurants Canada, for instance, has put out a strong message to the government to take a look at making something like evictions an illegal process during the pandemic. Have you heard of anything moving forward with what the government is doing to help protect not only the landlords but the tenants as well?

Yeah, and again, it's another evolving thing, and I think roughly half the provinces now, give or take, have some sort of policy in place where they're putting a freeze on evictions. Typically, I think it's most of them are in that 3-month window, and that's good, but I don't think that's really the I think the typical commercial landlord out there isn't looking to evict their tenant right now. There's not a lineup of tenants looking for space. They want to try to keep these tenants. They want to try to keep their cash flow going, of course. But a lot of landlords recognize that the cost of replacing a tenant, if you boot them out, between vacancy and renovations and commissions and, and, you know, all the costs that come with getting a new tenant, it's far more cost-effective to work with your existing tenants. Yeah.

So through this experience that you've been having right now, are you finding then that you have— that landlords are pretty open to having the conversations with their tenants?

I think for the most part they are. I think there's a bit of a lag and we're seeing where that's going now that we're, you know, a week or two into this. Initially when this started, I was hearing either when I was speaking directly with landlords for my clients or speaking with tenants that were sharing their experiences, There's kind of 3 general responses from landlords. You know, some that were simply non-responsive, and that's still— there's some that are non-responsive. There were some that said, you know, we're April 1st tomorrow. So there were a lot of landlords that were saying, you know, a week or 2 ago saying, we're working on something. Status quo for April 1st, we expect full rents, but we're going to roll out some sort of rental assistance program in April. So be patient. We're trying to work with you. And then there's others that have been very proactive of initiating contact with their tenants and checking in with them and even offering different options on rental assistance programs even before the tenants have come to them or in immediate response. So I think the tenants are— or sorry, the landlords are willing to engage with their tenants for the most part. What that engagement and result is going to be is really all over the map at this stage.

But I think you hit the nail on the head. The fact that having the conversation with the landlord, the landlord is motivated to keep their properties full with paying tenants over the long term, knowing full well that if somebody closes their business right now for the duration of the pandemic, looking for any releaser is going to be next to impossible. So, it does seem to make logical sense that they would be focused on making sure that their tenants are fine.

They are. And every landlord's different too. You know, you get some— I think it was over a week ago now, you looked at First Capital, which is one of the larger landlords in Canada, took initiative to announce a $30 million rent deferral program for their tenants in there and kind of setting up applications and qualifications similar to the government program saying, you know, give us some information, here's your criteria to meet it, here's what we're going to do. Some of those landlords can do that. They have the means to do that. They have the coffers to do that. But there's also, you know, a lot of small landlords out there. I think statistically, you know, what's defined as kind of those smaller-scale landlords make up about 80% of the landlords out there of actual space. So there's a lot of really big landlords that have big chunks of the portfolio, but there's also a lot of small landlords that are, you know, a few buildings right down to that true mom-and-pop landlord with one building, and their financial The situation's gonna be a lot different than, you know, a REIT and investment trusts and, you know, all these pension fund landlords. They certainly wanna make money, but a lot of those have capital that can weather at least a little bit of this better than perhaps one, you know, small landlord that this was their retirement plan and they really need that cash flow to pay that mortgage.

Yeah. So just a quick note that in case you're just joining us right now, I'm speaking with Jeff Granfield, a commercial property lease specialist and consultant with The Lease Coach. You know, this is an unprecedented situation. And, you know, having these small— what you were saying, these kind of small mom-and-pop tenants or landlords, the challenge here is that they still have mortgages that they have to pay. Has there been any talk now? I know that there's been a lot of talk You know, there's been a lot of pressure for the financial institutions to start putting programs together to help mitigate some of the financial burdens on property owners. Are you seeing that there's a spinoff here that's going to benefit the tenants in the long run?

I think there's going to be some of that depending on how long we end up in this situation. I think it's going to have to be a little bit of a contribution from everyone. You know, those landlords maybe have some resources that they can tap and, you know, reduce rents temporarily. They're no different than a lot of the residential tenants out there, you know, residential property owners that are having difficulty making ends meet with their mortgage payments when, you know, the primary earner or both members of the family are laid off and collecting EI and other programs out there. So I think you're going to see more of that. And I think right now it's going to be a case-by-case, you know.

Right.

Lenders are doing the same thing, trying to manage their cash flow and their portfolio. And every level of this is essentially a business and it's all a chain linked together where everyone's trying to keep cash flow and keep afloat and survive coming out the end of this. So I think the only way this really is going to work for everyone is there's going to be— everyone's going to have to share in the pain and, you know, work together to figure out a way to keep things rolling as we come out of this.

So I'm guessing that from a tenant perspective then, the very first step that they need to be doing is pulling out their leases right now. They shouldn't be going with hyperbole or what they think the lease says.

They should actually physically pull out their lease Yeah, I think you want to look at your lease for a number of things. I mean, you want to look into just your— review your lease as a whole and just see if there's anything in there. There may be things that apply to you. You know, even if you have— some leases will have tenant rights to terminate. That's not that common, but some cases do. You know, if there's a reason for that to be negotiated in or you're able to get that negotiated in, you might have a clause that lets you out of your lease with, you know, 3 months' notice or with a penalty. But most business owners don't have that. Most of them don't want to do that. I mean, most of them, this is their livelihood. They want to come through the other end of it. There's a lot invested into their business. They're not looking to terminate the lease even if that right's in there. But looking into things, you know, I even have some— fortunately, I was speaking with a restaurant client of mine from a few years ago called me and she said, well, I remember we negotiated in a clause that if the anchor of our location closed, we would have our rent cut to 25% of their rent automatically until the anchor reopens. And fortunately for her, like grocery stores are still operating, which is generally the anchor, but the anchor of her location was actually a large fitness center. And she's getting, you know, essentially within 30 days an automatic rent break. But that's not the case for most tenants. But that's why you should look at your lease, see if you have, and if you negotiate any of those unique clauses, you'll probably remember because those certainly aren't going to be standard boilerplate language clauses that are to the benefit of the tenant contained in a landlord lease. standard form lease. So you should look at that. Look at your dates, look at your obligations, look at everything in the lease, see if there's anything you can pick up that might help you. But the unfortunate answer, similar to where we started this call, is most of those provisions and clauses aren't going to allow that automatic break for the tenant, and it's going to require discussion with your landlord.

Right. So to me then, that seems like that's step number 2, is they have to— tenants must approach their landlords and have a sit-down or a conversation with their landlords. How do you— what is the best way to do that so that it's not adversarial, that it's done in the spirit of cooperation, that it's, you know, looking at the win-win rather than, this is what I want, I'm sorry that you're going to lose?

Yeah, I think that that's really important what you were saying there is that I'm seeing some tenants that I'm talking to and saying, well, I called my landlord 2 days ago and I told them I'm not paying any rent for April. I can't afford it. You know, that's a pretty adversarial response, you know, and especially if it's coming by an email where you can't look at tone, you don't see the backstory, you don't have a conversation. So I think that's a mistake for the tenants coming in dictating things. Even if that's the reality that you can't pay the rent, I think there needs to be a different approach to that. That's where— and some tenants are coming in there and saying to landlords, I'm not paying, I can't pay, or I'm proposing to do this. I really think that's the backward approach, at least to start.

Yeah.

What I'm recommending to my clients or tenants that I'm talking with, or what I'm doing to approach landlords, is reaching out to them and saying, look, we all know what's going on. This isn't unique to any region or area or city or industry really even. Some are hit more than others. But I'm reaching out to them saying, look, we're struggling. This is not a surprise. For most business owners, their rents are their second biggest overhead behind It's a big overhead expense. I'm reaching out to the landlord saying, look, do you have any plans in place? Do you have a rental assistance program? 2 reasons, just trying to get a dialogue going. And 2, you want to see what's the landlord proposing because some of them are coming out and saying, we're deferring April rent, you know, and it may just be the base rent, but we want you to pay the operating costs, or we're willing to defer 30% of your rent or 50% of your rent. Finding those landlords that have that program, now you're engaging in a conversation, not telling them what they're doing. It's also setting you up that if they're instantly offering something, that may not be enough to support your business through there. Now, if they've offered a 50% rent reduction or deferment and you need a 70% to keep afloat, well, now you're only negotiating 20%. You're not coming in guns blazing demanding a 70% rent reduction. So, contacting them, finding out what their plans are, I think is really the right starting point.

And so, part of the challenge with some people have, as I started off saying earlier, some people have really great relationships with their landlords and sometimes, the relationship tenant relationship can be butting heads. When it's that kind of a relationship, do you have any suggestions on How best for tenants and landlords to come together?

Yeah, and you're right. There are some relationships where they're a bad relationship and there's some that's just a non-relationship. At the end of the day, your rent check just shows up and everyone stays in their lane and does their own thing. And there's very little of a relationship with the landlord or the property manager in there. So if you have that negative relationship, which some tenants do, whether it's just been difficulty, you know, whether there's been legal battles or just tough negotiation or just issues with the property. I think that's where you do want to come in and again, not taking that dictating what's going to happen approach. And you're even seeing a lot of landlords changing their position. I was just talking to somebody this morning that they were sharing, they're in a financial field and they were sharing one of their clients had said to them that they've had, in their opinion, the worst landlord ever. They were constantly, their landlord, for lack of better words, I think was Was a jerk, I think the words that they used in there. But they had actually— the landlord was proactive and reached out to them. And I think that was part of it, the landlord recognizing, look, I may have had a tough relationship with this tenant, but I think that landlord was seeing whether it was self-serving or not, seeing that— and it is. I mean, everyone's kind of looking out for their interests, but seeing that I need to help this tenant, work with this tenant to get through this.

Yeah.

And maybe by communicating to them, maybe they're able to get the operating costs to cover the property taxes and different stuff. So I think you're seeing people having to step past that and try to engage that. I've seen some landlords do that. It's usually something more so with the smaller landlords. There'll be that baggage with the relationship. The big ones are just big moving machines, a little bit more robotic.

Yeah.

But that's something for the tenant too, is being prepared, not coming in with just dictating terms. And one of the things coming in is I've been saying to a lot of people is that as you engage in this, you're not going to bring this up in your first call, but start being prepared. Get your ducks in a row because I can tell you right now, having gone through these situations and just economic downturns and different stuff, having to renegotiate terms or get rent breaks or deferments, a landlord often says, what else are you doing? Am I the only person you're asking for a handout or taking a haircut at this? So being able to come to them and say, well, I've contacted my insurance company and I'm not covered, I am covered. Saying that you've taken— you're accessing every government program you can, you've initiated that to help staffing costs, you laid off certain staff, you're cutting unessential services in your business, unneeded contracts, different things in there. Talking to your lender about getting interest-only payments on loans. So doing all of those things. I think shows a lot of good faith as a tenant that you're not coming to them and saying, look, you're the only person I'm looking for help from. You're saying, I'm going to need help from everyone. You're just a part of this equation, is a good way to enter into those discussions.

And, you know, so I mean, again, really great point because what you're saying basically is it's not a question of you just go— of the tenant going out and asking for a handout, but actually coming up with a strategy. Formulating a strategy that's going to help their business survive and help them move forward. And talking to the landlord is just one of those steps. It's not the only step.

That's right. And just, you know, even business plans. Again, I've had some of my clients where I've talked to and strategized with them and said, look, you know, really, this was early on happening. I was saying, you want to come to your landlord to go, I'm not just throwing in the towel and closing my business. If you're a business that cannot operate, what are you doing to change your business, change your service, change your product? And using the hospitality, that's a major one. Even seeing those initial people trying to pivot to— I had some of my restaurant clients that were being very proactive even on the ordering and delivery platform where they were concerned that there may be a shortage of Uber drivers or SkipTheDishes and an overwhelming flooding of those sites in there where they were developing in real time with their web developer to have an online ordering system through their website and their drivers for 2 reasons. They might be able to take their waiter And turn them into a delivery driver, keep them employed, and now they've got a service that they're controlling. So things like that landlords tend to take as going, wow, this tenant's being proactive. They're trying to not only cut costs wherever they can, but they're trying to maintain revenue where they can as well.

Yeah, I've heard something similar along the lines of fire lanes, that because of the ordering that restaurants ask that their fire lane be waived Yeah. In front of their business in a mall. And it's worked out very well. They put up signs that say, this is the drop-off. And the customer texts the restaurant when he arrives and somebody runs out. And again, like you said, it was a good way to keep people employed even though it might be outside the scope of what their current job description outlines. But at the end of the day, it's about making sure that our economy keeps on going forward.

Yeah, absolutely. That's right. And I'll touch on a couple things kind of going back to that we had talked on the first step, second step on discussing rental assistance from your landlord. There's a few terms that I think it's important to really almost define because I see a lot of confusion when tenants are talking to their property manager or landlord themselves. You hear a lot of different terms being thrown around: rent deferment, rent abatement, rent relief.

Right.

You know, rent holiday, all these different terms that are in there. And there, there are different definitions to those, you know, in there. And it's important because, you know, looking at what I'll touch on, kind of the key 2 terms are rent deferral versus rent abatement. And rent deferral basically means that the landlord is saying, okay, whether it's your base rent or 50% of your total rent or whatever that, or 100% of your rent in there, We're deferring, for example, April. That doesn't mean that you, you, you don't pay that forever. It just means that we're saying you don't pay it now, and then we're gonna negotiate when that's gonna be repaid, whether that's a lump sum 6 months from now, whether that's amortized over the length of term left of your lease over the next 12 months. That's really what a deferment is, and a deferment helps tenants. Some tenants, that's gonna be the Band-Aid they need to get through this. You know, I was talking to an accountant earlier today and he was saying that in their firm they were going to be really cash flow tight for the next little while because everyone's throwing everything on hold. Their deadlines for tax are extended, so a lot of their billings are going to be extended, yet they're trying to keep everyone employed and get that work done and carrying all their overheads. So they're going to be tight. So rent deferment for a company like that where they're going to make up that revenue You know, in the next 3, 4, 5 months might be fine. You know, they can, they can do that whether it's spread out, you know, at the end of this year over the term, that may work. But there's other businesses that once they've lost those sales, they've lost that for 2020 or beyond. And a rent deferral may not be ideal. And that's where they've got to look at a rent abatement where they're truly having rent forgiven. And whether that's all their base rent or full rent, whether it's for 1 month, 2 months, 3 months, that's—

Yeah.

That's certainly an ideal scenario for a tenant, but it's less ideal for a landlord. You know, they're giving up that rent in there. So there's going to be that discussion and negotiation depending on your unique situation, whether it's a rent deferral, rent abatement, or a combination of the two, and what the terms of those agreements are. So that's really important to work out and why it's important to ultimately document this too, because what it's gonna say in writing, what you agree to, you need to make sure that's clear. Because I've talked to a lot of tenants that think they're getting a rent abatement, but they're really getting a rent deferral.

Right. Yeah. And so part of that is, you know, so we're talking about a lot of legal terms now and getting an understanding of what they all mean. Obviously, it's outside the scope of our 30-minute live broadcast today to go super deep into it. At what point should tenants start seeking legal advice?

It's a good question, and there's probably not a definitive answer. I mean, my recommendation on this is that I don't think legal route's the way you want to go, at least now. You know, it's a time-consuming and costly and almost an after-the-fact approach. You know, if there's a problem now, how do you legally correct any damages in there? I think that's the resource you want to go to if when this is all said and done, if there's your landlord not working with you, you really want to take that approach of discussions and negotiations. Far more beneficial to if your landlord's willing to work with you, there's really no sense of You're not trying to send your lawyer after them, sue them, or pursue them in there. I think that's kind of your last resort. I'm not saying you may not have to go down that path at some point depending on how this all evolves and how your discussions and negotiations go, but I think it should be secondary to those initial dialogues for sure.

That's awesome. So if, if from everything that we've talked about in this in the last 29 minutes, is there anything that you would say that tenants need to do right now? What is the What would you say is the very next step as soon as they get off this broadcast?

Well, I think if they haven't already, it's starting that dialogue because landlords are inundated with the— especially bigger landlords, a lot of tenants. They're just, they're getting requests hourly to communicate. So it may take some time and some persistence and just a lag to get that communication going. So if they haven't started that, it's definitely to initiate that dialogue. And it's really understanding, as you said, look at the lease, initiate dialogue. Reach out to your advisors. You know, I'm happy to chat with any of the people watching this if they want to contact me for a 15-minute consult to pick my brain and answer those initial questions. Start figuring out your game plan. Just don't sit on your hands.

Yeah. Well, I mean, that's a really generous offer as well. So how do people get in touch with you if they want to reach out and touch base with you? I mean, offering that 15-minute consult is, I think, going to be super handy for a lot of people.

Yeah, it's certainly the best way is probably through email, which I think we're going to when this is recorded have it up there. But for those, I'll spell out my email, which is Jeff Grandfield. So my full name, J-E-F-F-G-R-A-N-D-F-I-E-L-D at theleasecoach.com. So T-H-E-L-E-A-S-E-C-O-A-C-H dot com. So Jeff grandfield@theleasecoach.com. That's a great way to reach me because I can respond when I have time to do that. They are welcome to pick up the phone. Our toll-free number is 1-800-738-9202, extension 3, and call me and leave a voicemail. And I'm trying to return calls and emails as quickly as I can to communicate with business owners.

That's absolutely awesome. Jeff, I have to point to you now. I'm going to point to you Because that's a really good technical thing to do. I can point over to you and say, Jeff, it has been absolutely wonderful having you on this broadcast. When we talk about subject matter expertise, this is exactly what I was thinking about. Thank you so much for joining me today. And thank you out there for joining us today. I hope this information is helpful. I hope it brought a little bit of clarity to some of the contention or some of the stress that you're feeling as an owner-operator of a business. On Thursday, April 2nd, and that's in 2 days, I'm going to be having conversations about the toll that this epidemic is having on our mindsets, on our mental well-being. We can get negative really, really quickly. And so, I am inviting Leading to the conversation, I'm going to be speaking with life coach Bill Lee. And I would like him to delve into a little bit this idea of the guilt that we feel as entrepreneurs having to lay people off. The stress we feel because we're not making money. We don't know where the next buck is coming from. And the scare, the uncertainty that the pandemic is causing for the future.

Yeah.

of our business and our livelihood. So, on Thursday, we'll be sitting down with life coach Bill Lee who will take us through some strategies to deal with our mental stress and get us focused on our reopening. My name is Marc Haine. And as always, I am at your service. I hope you can dare to be the exception. Thanks for joining us today.

Thank you.