3 Creative Solutions For Paying Rent
Creative solutions to pay your commercial rent outside of the standard rent deferments and abatements
Does anyone else feel like we just paid last month’s rent when it’s now time to pay this month? Us too. Faced with complicated reopening decisions, many businesses are choosing to extend the remote work mandate through the Summer and even into 2021, but are still grappling with office space and commercial rents for the Summer and potentially even prior months. Between this and the recent changes to the Paycheck Protection Program (PPP) allowing (up to 40% of PPP allocation to rent and non-payroll expenses, many tenants are considering what to do about Summer rent payments.
The silver lining is that many Landlords are more willing today than they were at the start of COVID-19 to work with their Tenants on rent payment solutions. As exclusive tenant representatives, our job is to understand your specific situation, Landlord and future plans and think creatively about the best possible solution for you.
Here are 3 creative solutions to help you pay your commercial rent outside of the standard rent deferments and abatements:
1. Use Your Security Deposit to Pay Your Commercial Rent
We’ve recently worked with tenants to structure a rent payment solution with their landlord to use their security deposit in total or partial lieu of rent, with the understanding that you, as a Tenant, will replenish when you can. Most security deposits are backed by a letter of credit, which is then cash collateralized with cash held in escrow by your bank for the Landlord to draw down on if needed; New York City tenants will typically have 3-6 months’ worth of rent paid up front in the form of a security deposit. This solution allows you to use your security deposit cash in lieu of operating cash now, freeing up much-needed cash for other expenses, keeping you entirely or partially out of default and allowing you to replenish when you’re able to.
We’re here to help structure this with your Landlord and have partnered with our trusted friends at TheGuarantors to help with the replenishing piece of the puzzle as we understand that it’s difficult to commit to a date certain amid ongoing uncertainty.
The Guarantors act as a “guarantor” for you (hence, the name) by replacing a cash security deposit or cash collateralized letter of credit with a surety bond. Their surety bonds are backed by the largest, household name insurance companies and priced accordingly, with much lower rates than traditional financing alternatives. This in turn allows you to free up some much-needed cash to use in your business now with no impact to your balance sheet or credit capacity. TheGuarantors partners with many Landlords around New York City, including many of the largest institutional landlords, so chances are your Landlord is either already working with them or may be willing to.
2. Defer Your Rent
Every lease and Landlord is different, but as we said above, we’ve seen unprecedented levels of cooperation between Landlords and Tenants over the past few months. We, a Tenant representative, remain confident there is a solution for each situation, including those who can’t pay their rent right now. For those who cannot, deferring your rent may be the best and only option. You can work with your tenant representatives to either defer 3-6 months’ rent to be paid back beginning in 2021 OR defer rent down to be added to the end of your existing lease. Additionally, we also structured agreements where landlords defer 50% of rent for the next 6 months to be back over the remaining lease term. Just like every lease and Landlord is different, every rent abatement solution can be tailored for your business’s needs.
3. Blend and Extend
Tenants who have less than two years left on their lease, structuring lease renewals using what we call ‘blend and extend,’ maybe a great option. You sign a longer-term lease now and in return for the commitment you receive:
Free rent to be used immediately to cover the coming months.
Taxes reset to $0; as part of any lease, you should pay 0$ in the first 12-months – this is your tax base year.
Favorable base rent relative to pre-COVID market conditions.
If you are looking to stay in your existing space, the ‘blend and extend’ is a solution that solves both the Tenant and the Landlord’s needs.
2020, so far, has been a challenging year. However, we are seeing communities coming together to put forth solutions that can benefit everyone, including how to pay for your business’s commercial rent. It is vital to engage with your stakeholders as well as your bank, LandLord, lawyers, and, most importantly, a trusted Tenant Representative who can get everyone on the same page while being your unwavering advocate and only representing your best interests.
