As the country re-opens and emerges from the covid-social distancing funk, what are tenants doing?Many tenants are badly damaged by the impaired social distancing economy.
Society is at the very beginning of a new and very serious dance between landlords and tenants; this dance is a posturing and adjustment process that will play out over next 12 – 18 months as both landlords and tenants adjust to the new economic and social reality. For sure, many landlords and many tenants will leave the dance and go home alone.
“I have decided not to pay rent!”
One of our clients has simply decided not to pay rent. He is a tenant under a long-term lease and spent almost $500,000 renovating his premises within the last 18 months. His logic is that his sales were significantly reduced due to social distancing and therefore his rent should be reduced. He has arbitrarily decided not to pay a month’s rent. His landlord has retained legal counsel who has served him with a demand note, formally requiring him to comply with the terms of the lease by paying rent. We have been communicating with his landlord and his lawyer to manage the situation.The landlord has options such as putting the tenant in default, seizing the premises and assets, or locking the tenant out. At this point the landlord appears to be working with the tenant.
“I don’t want my premises anymore!"
Several our tenant clients have decided not to re-open after being closed for several weeks based on their opinion that their operation is no longer financially viable. Specific reasons include that staff have quit, they may become infected, their social-distancing sales volume will be below break-even, and they are emotionally exhausted. What can a tenant do to break a lease?
“I can’t use my office space!”
A lawyer who is an associate of a large law firm which occupies the top two floors of a large office tower said that he has been working from home since mid-March but expects to return to the office next week. Apparently the five floors below his premises are now vacant due to tenants failing, relieving pressure on the washrooms and elevators. The law firms protocol to use the washrooms will be to descend to the facilities on vacant floors in the elevators which have been partitioned with plexiglass barriers into single isolated person cells, use the facility one at a time, wash hands carefully, and scamper back up the stairs. Should their rent be reduced?
“I didn’t pay my rent!”
Global News has reported that RioCan, a large publicly traded Real Estate Investment Trust, has locked Old Navy out of their Kingston location. Apparently, after being closed for weeks amid the coronavirus crisis, and then opening with limited services in May, the Old Navy store has been closed since June 4 due to a leasing issue. The notice posted on the door of the store says that Old Navy’s rental tenancy has been terminated for non-payment of rent. The notice also said the locks to the store have been changed. In a statement, Gap Inc.,which owns Old Navy, said the store was slated to reopen Saturday June 13. A statement from Gap read:
“Like many retailers, Gap Inc. was forced to close its North American stores due to the COVID-19 pandemic, during which period we suspended rent payments,”
We don’t know how many months of arrears they were in with RioCan, or how much they will have to pay to ensure the store’s reopening.
What can a tenant or a landlord do if they wish to adjust their tenancy to be more appropriate in the current economic environment?
Tenants and landlords are partners. The only way to get through this is to understand and work through options – the only option that we do not recommend is doing nothing.Please contact us to review your position and provide you with a realistic overview of your options.