COVID-19: Impact on Real Estate Leases and Purchasing Contracts

This blog is based off Next Generation Manufacturing's webinar, featuring Cloteen Jasmin, Jim Bob Taylor, and Michael Bennett from Cresa Atlanta’s Industrial Services group, and Mike Loy from Cresa Atlanta’s Project Management team. To listen to the full webinar, click here.

We’re all trying to navigate through COVID-19 and the unprecedented impact it has had on the global economy. Businesses are unsure about real estate obligations amid forced closures, mandatory social distancing, furloughs, and layoffs. With everyone in cash conservation mode, some common question we’ve been getting are: Should I still pay my rent?, What happens if I’m in the process of buying or selling my building?, and What are the impacts on construction and permitting?

Below are some valuable steps you can take to navigate your way through this changing landscape.

Should I still pay my rent?

In the short answer, yes. Withholding rent during a situation that is not caused by the Landlord’s action may be detrimental to the tenant. That's the short answer, but the unfortunate reality for many businesses is that the cash needed to pay rent just isn't there at this time. If that's the case, it’s critical to take action now, and create a strategy based on your financial situation to get you through the next 3 to 4 months. We suggest you and your advisor start by:

  1. Reviewing the lease: Know the numbers, like your current and future payments. Understand your legal obligations, including force majeure clauses, events of default and holdover provisions, and repair and maintenance obligations.
  2. Communicating with your Landlord: Some landlords are going to be thoughtful and understanding, others are not. If you’re feeling the stress of cash flow, reach out before it becomes a bigger issue. 
  3. Understanding your company's financial health: Prepare financially and prove there is hardship. Show the landlord where your company was before the pandemic and where you are today. Then, create dialogue and develop a plan going forward to get you through the next few months. 
What happens if I'm in the process of buying or selling my building?

Uncertainty about future business needs could bring Buyers and Sellers back to the table. With that in mind, it’s important to collaborate and work together to save the deal. This could be anything from buyers requesting purchase price reductions and sellers offering to reduce the purchase price for a quick close. 

Things aren’t business as usual and timeframes are no longer in the parties’ control:
Some dates and timeframes may need to be adjusted, and alternatives, like signing a short-term lease, may need to be considered to secure financing and preserve capital. Our relationships with different developers and buyers on the contracts we’re working on allow us to guide you through these situations, leveraging information in the negotiation process.

What are the impacts on construction and permitting?

Permitting offices are closed and/or operating with limited staff. If you’re in the stage of still planning as it relates to permitting time, you need to plan for delays. One of the critical things we’re finding is that the PM staff needs to be integrally linked to the transaction side of the equation. Things like permitting and construction management are affected dramatically by the lease terms and completion deadlines.

The landscape is changing rapidly and we’re all learning as we go. Across the board, communication with all parties is key. Rely on your professional advisors to review your lease, communicate with your landlord, make strategic decisions, and understand your leverage. It’s not business as usual, but we will soon get back to that point. As always, the professional advisors at Cresa are here to help.

 

For more information visit cresa.com or reach out to Cloteen Jasmin (404.446.1562), Jim Bob Taylor (404.446.1864), Michael Bennett (404.446.1862), or Mike Loy (404.446.1583) with any questions. 

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