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3 Potential Rent Relief Structures to Talk to Your Broker About Amidst COVID-19

3 Potential Rent Relief Structures to Talk to Your Broker About Amidst COVID-19

By: Jon Wheless

 

AQUILA has been working tirelessly to understand the impact that the COVID-19 crisis will have on the commercial real estate industry so that we can, in turn, properly advise our clients during this unprecedented time. 

Several of our tenant representation clients have asked about the possibility of rent relief to help ease the significant financial burden they are suddenly encountering, so we have been working with our network of brokers, landlords, lenders, tax consultants and others to understand what potential rent relief solutions might look like.

In this article we will discuss:

Read More: AQUILA COVID-19 Austin Real Estate Resource Center

Three Possible Rent Relief Structures

It is important to understand that every company’s situation is unique so there isn’t a good one-size-fits-all approach to rent relief. That said, here are three potential rent relief scenarios that landlords might be open to, depending on the unique situation of your company. 

  1. Abated Rent (Amortized)

This structure would call for abated base rent in the short-term, but the value of this abated rent would then be amortized in to the base rent in the future. 

What does abated rent mean?

Commonly referred to as “free rent,” abated rent simply means that for a period of time the landlord agrees not to charge rent. Free rent can be a little misleading, however, because it often does not mean the tenant is paying nothing for those months. In most cases, it is the base rent that does not have to be paid, while operating expenses and other costs not associated with the base rent are still paid by the tenant.

 

You wouldn’t need to extend your lease, but your monthly rent would increase in the future to essentially “pay-back” this rent over the life of your lease. 

For example, if your monthly rent payments are $50,000 per month and your landlord gives you two months of abated rent, that $100,000 ($50,000 x 2 months) would be paid back over the life of the remainder of your lease. If you have five years remaining on your lease, you would end up paying an additional $1,667 per month in rent over the remaining lease term ($100,000 ÷ 60 months).

 

If you have more than five years of term left, this could be an attractive option since the increase in rent could be paid back over a longer period and thus not dramatically affect your monthly occupancy cost.

  1. Abated Rent (Lease Extension)

In this structure, you could also negotiate abated base rent in the short-term, but as opposed to amortizing the abated rent value into your existing rent schedule, you would extend your lease term a few additional months. 

This structure may make more sense if you have less than five years of term remaining on your lease as it would not increase your existing monthly rent obligation, but merely extend it. Additionally, landlords may be more receptive to this if your lease expiration is looming, as it would ensure your tenancy in the building for a (slightly) longer period. 

  1. Lease Restructure

If you have less than two years remaining on your lease and have a certain degree of confidence you may want to extend in your current space (or downsize into a portion of your current space), you may consider restructuring your lease. 

In exchange for a longer commitment, the landlord might be willing to offer up-front abated rent, as well as a tenant improvement allowance should you need to perform any work in your space to make it suitable for you long-term. 

Given the uncertainty of the current market (and the fact that there is 4.5 million square feet under construction that is not accounted for with leases), we may see some landlords start to be aggressive in the short term in order to get ahead of the curve and limit their exposure down the line.   

How long will it take to see rent relief? 

The understanding of the severity and duration of the impact this pandemic will have on commercial real estate is occurring in real-time, and we are learning more each day. While we have seen some landlords agree to these concepts already, most building owners would say that it is still too soon to dive deep into discussions surrounding abated rent scenarios. 

Building owners that have debt on their buildings need lender approval to modify any rent schedules or provide rent relief, so they are currently busy having these conversations regarding what can ultimately be done and at what point in time. We anticipate that landlords will have a clearer understanding within the coming weeks of what may be possible, at which point they can begin having substantive conversations with their tenants.

What You Can Do Now to Speed Up the Rent Relief Process

Review Your Lease

The first thing you can do is have an attorney review your lease to make sure you have a thorough understanding of your rights, particularly the force majeure section of your lease. 

An experienced tenant representation broker can also help you review your lease and make suggestions on questions you might ask your legal counsel to review. 

Prepare Documents to Share with Your Landlord

Since the potential solutions laid-out above contemplate concepts that are likely not included in your existing lease, enacting these solutions will require a certain level of willingness and cooperation from your landlord. 

Landlords have uniformly told us each tenant will be handled on a case-by-case basis and an understanding of their past, present, and anticipated future financial position is going to be paramount. 

To understand what you might need to provide your landlord, read our article What You Need Prepared Before You Approach Your Landlord for Rent Relief Negotiations.

During this uncertain time, AQUILA is here as a resource for you, and we are ready to help with any questions you may have.

To get more information on your unique situation, schedule a consultation with our Tenant Representation experts. 

 

Austin ALA Business Partner, TerminalB Presents

 

Creating a Secure and Effective Remote Work Environments for Law Firms

     

As our clients start 2020, a common inquiry we’re hearing is how to establish a secure and effective remote work environment. A range of factors is contributing to the popularity of working away from the office, including commuting hassles, rising rents, broadband availability, and the desire for a healthier work-life balance. More and more, Terminal B is fielding inquiries from law firms that have taken the remote-work idea to its logical conclusion: they have no dedicated office space, yet have employees statewide, nationwide, and even worldwide.

The New Normal

Here's what we know; remote work is no longer just a trend. As of 2020, 83% of US businesses have introduced a flexible workspace policy, or are planning to. The driving forces are obvious: Remote workers tend to be happier and more efficient, resulting in higher performance and lower costs.

The data heavily supports this. In their 2019 year-end review, the employment site Flexjobs found that 80% of U.S. workers would turn down a job that didn’t offer flexible working. And regarding performance, their surveys show that 85% of businesses reported increased productivity from employees working remotely, while 77% found it led to lower operating costs. Clearly, the tipping point has been reached.

Past the Tipping Point

So, offering flexible workspace options has become essential to productivity, profitability, and to attracting and retaining talented staff. Let’s then return the question of how to set it up. Enabling a successful mobile workforce requires a change in a firm’s technology focus: The paradigm must shift from the end-user’s possession of company data to their access to company data.

Any transformation that empowers employees to work anywhere at any time demands that technical barriers be removed. But obviously, this must be executed in a manner that does not compromise the security of the organization. If you're preparing your business to implement remote work policies, make sure to consider these five key factors.

5 Key Technical Considerations that Enable a Successful Remote Legal Workforce

Reconsider Your Network Infrastructure

In the modern work environment, an organization’s network includes all the locations an employee could work from. Without quality bandwidth, remote access can be frustrating, and the benefits lost. Firms can ensure quality bandwidth by reimbursing some, or all, of remote bandwidth costs. Firm-managed firewalls such as the Cisco Meraki Z3 Teleworker Gateway can create a secure, restricted connection within a remote network, greatly simplifying user access and support.

Be Present

Working exclusively in virtual teams can make remote workers feel isolated. To prevent this, “in-office days”, when possible, and the productivity tools discussed below enable the personal interactions employees crave.

Security: Good Fences Make Good Neighbors

Law Firms must take the initiative to secure their employees’ remote locations. Connecting to unsecured networks like those in airports or coffee shops increases the risk of cyberattacks. No location, including home office networks, should be considered 100% trustworthy.

This applies similarly to devices – significant cost-saving and productivity benefits can come from bring-your-own-device (BYOD) policies, but only if they are properly protected. Company technology tools (antivirus, administration, etc.) and policies must be updated and enforced, regardless of who owns the assets used to access company data. And all devices should be encrypted to mitigate the impact of physical loss or theft.

To minimize security risks, make sure you should:

  • Use a VPN and encrypt data to render it unreadable in the wrong hands
  • Install security patches as soon as they become available
  • Set controls so that employees can access only the data they are authorized for
  • Implement multi-factor authentication (MFA) protocols

 

Employee Training

In any network environment, most data breaches are caused by human error. So before letting employees work off-site, it’s more important than ever to train them on cybersecurity. Make sure they can identify social engineering scams like phishing emails, and how to be vigilant toward fraudsters aiming to trick them into giving up vital information like login credentials.

Empower Your Remote Workforce with Office 365

Office 365 combines the Microsoft applications everyone is familiar with, and cloud computing solutions like Exchange and SharePoint, into a single subscription service. It’s readily deployable and it’s secure, with built-in privacy and compliance tools that make it easy to keep your data safe. On top of this, it’s familiar, and employees are less likely to commit security mistakes in a familiar environment.

If you have been thinking about mobile work as a trend, it is time to realize that has become much more than that. For many of your most attractive customers and employees, it is the new normal.

Terminal B is your trusted advisor for Microsoft Office 365, Microsoft Azure Hosting, Cisco networking, and other technology law firms rely on for successful remote work environments.

By Greg Bibeau