As the pandemic continues, we continue to receive calls from our clients for advice on agreements being made between commercial landlords and their tenants, often to accommodate specific tenant requirements.
Typically, these requests relate to rent abatements and deferrals and are borne out of situations such as (i) tenants whom don’t qualify for or for various reasons are otherwise not receiving the benefit Canada Emergency Commercial Rent Assistance program (CECRA); (ii) tenants whom continue to need support from landlords for the period extending beyond the end of the CECRA program; or (iii) tenants whom can’t pay their required contribution to rents after application of CECRA (25%) and require further accommodation.
In light of these requests, I want to share some suggestions and recommendations for landlords to consider with respect to specific terms that your agreements with tenants could include as you negotiate these agreements:
- assess what part of the arrears can be realistically paid and require a rent payment up front (either in full or in part) as a sign of good faith – while many tenants are understandably strapped by current economic conditions, landlords often require a significant portion of rents to fund the continued operation of buildings and properties – note that one important caveat applies here, your agreements should provide that the tenant acknowledges that the landlord’s acceptance of part payments of rent or arrears does not waive or estop the landlord from collecting the balance of the amounts due down the road;
- make deferrals or abatements of rent conditional on the tenant maintaining good standing on its obligations under the specific deferral agreement and the lease – situations such as a further default, transfer of the lease, or acts of insolvency/bankruptcy should immediately trigger the entire balance to come due – also consider how the impact of future pandemic-related economic disruptions might impact the tenant and consider providing flexibility for such situations up front;
- consider the strength of the tenant’s financial and credit position as a whole and what further additions to the existing position (i.e. indemnifiers, security, etc.) might help blunt the potential impact of a future default.
With some advance planning, landlords and tenants can negotiate reasonable terms that will help to allow the parties to move forward with their leasing relationship and, hopefully, move beyond these challenging times.
As always, we recommend obtaining legal advice on the specific terms and conditions of your agreements since every situation is unique.
