Guidance for Commercial Landlords
In the face of the “Keep Your Rent Movement” gaining popularity among tenants, many landlords were holding their breath to see whether or not their tenant would be joining the movement on April 1st.
If your tenant refuses to pay rent, subject to what each specific commercial lease includes, landlords will have the following common remedies available to them:
- suing the tenant for default, as well as any personal guarantor (if provided);
- distraining assets; or
- evicting the defaulting tenant and finding a new tenant.
However, in this current economic climate, to the majority of landlords, the above options are less than ideal. Prior to sending out default notices, landlords need to consider the practical challenges the above present. With the courts currently closed (except for emergencies), pursuing the tenant, as well as any personal guarantor in court will not be a quick solution. Distraining assets may also present unique challenges, as finding bailiffs and movers willing to move the assets may be rare. Finally, finding a new tenant at this time of extreme uncertainty may prove impossible.
With the landlord’s usual remedies not readily available, we suggest considering the following options, which may result in practical solutions that limit both the landlord and tenant’s damages.
Practical Solutions for Landlords:
- Communication During this time of uncertainty, great value can come from openly communicating with your tenant. If the tenant anticipates challenges paying their rent in the near future, perhaps have a frank and candid conversation about what fixed costs the landlord has, so that both parties may experience empathy for one another. Together, the tenant and landlord may be able to come up with a payment plan to ensure both parties needs are being met.
- Rent Deferral or Rent Reduction If possible, the landlord may wish to offer to its tenant temporary rent deferments or rent reductions to allow some breathing room. The amount of reduced or deferred rent could be paid back to the landlord by the tenant gradually during the remainder of the lease. In connection with this, the landlord may wish to consider obtaining additional security from the tenant such as a personal guarantee. Parties should ensure that any rent deferral or rent reduction agreement is properly documented in a written agreement and that the details of the deferment or reduction are mutually understood and agreed upon (i.e. agreement on what is covered: basic rent, additional rent or both, when repayment will occur, and if any interest will be charged).
- Lender Canada’s large banks are currently being encouraged to show flexibility in helping customers whose business finances are affected by COVID-19. Landlords are encouraged to contact their bank to see what options their lender may have available. Please note, on March 18, 2020 the six big banks of Canada, as well as CMHC, released a statement advising the public that they are willing to work with personal and small business owners by providing up to 6-month payment deferrals for mortgages, and the opportunity for relief on other credit products.
- Security Deposit Consider suggesting to apply all or a portion of the tenant’s security deposit to an upcoming rent payment to provide the tenant with some relief. With the tenant’s understanding that the tenant will replenish the security deposit once the COVID-19 crisis is over.
- Utilities Consider reducing utility costs for the tenant by contacting (or having the tenant contact) BC Hydro to request deferred bill payments or arrange for flexible payment plans with no penalty. Grants of $600 are also currently available to BC Hydro customers experiencing job loss, illness, or lost wages due to COVID-19.
While the end goal remains to collect 100% of the rent owed under the lease, by showing your tenant compassion and willingness to be flexible during this challenging time, you will hopefully develop goodwill. Given the lengthy terms of most commercial leases, the benefit of this goodwill may more than outweigh the current costs associated with providing the tenant with a bit of breathing room at this time of crisis.