Attention: Cresa Ottawa COVID-19 Initiative

These are unprecedented times, and we want to help. Cresa Ottawa is offering to support clients and major employers with rent abatement discussion with their landlord. We're not seeking any compensation for this effort, nor are we suggesting that the landlord will simply gift any relief provided. We have several strategies we are employing to achieve this, and depending on your situation and that of your landlord, we expect to be able to arrange a period of lower rent, or no rent whatsoever. The rent relief may represent anywhere from between 1 and 3 months. We hope that our ability to work with your landlord to support you in this effort will contribute to your ability to get through this crisis smoothly. Let us assist with this effort so you can focus on other pressing matters.

 

Our team is fully engaged working out of their home offices and ready to assist. Please call us at 613 688 7200 before May 8th or fill in the form below if you are interested, so we can discuss your situation. 

 We know things will get better in time. 

COVID-19 & Your Commercial Lease

Cresa Ottawa

Cresa is the world’s most trusted occupier-centric commercial real estate firm. We exclusively represent commercial tenants and solely focus on finding the best office space that drives superior results for your business.

April 23, 2020

Cresa is here to help! We are always in

your corner.

As your unbiased advocate, we’re committed to supporting you and your real estate strategy during this incredibly challenging time. 

While it’s impossible to predict the long-term impacts of COVID-19 on global business, we’re committed to helping you develop a roadmap that encompasses both your immediate needs and opportunities for strategic investments.

The following offer a general overview of the risks posed by the pandemic, as well as guidance on requesting rent relief and communicating with your landlord (or sublandlord) during this time. This is a fluid situation, and we will continue to expand on these recommendations as things continue to evolve. 

Immediate Actions

**These actions should be taken immediately to assess the impact of COVID-19 on your organization.**

1. Connect with your landlord(s) and subtenant(s).

  • Keep a strong line of communication with all relevant parties over the next few months.

2. Explore short-term rent relief.

  • Consult your Cresa advisor about making a formal request for rent relief.

3. Fully understand your rights.

  • Review the force majeure definitions and business interruption insurance language in your lease.

4. Avoid a lapse in landlord notices.

  • Ensure the lease requires landlord(s) to deliver important notices to a corporate address or a unique email address. This ensures important landlord communications do not go unnoticed.

5. Maintain a log of communication.

  • Capture both written and verbal communications with your landlord(s).

Are you a sublandlord?

  • It’s important to reach out to your subtenants to assess their viability. Prepare for potential defaults, non-payment of rent or subtenant requests for rent relief. You will need to formulate a formal process to assess such subleases.

Are you a subtenant?

  • It’s important to engage with the sublandlord and master landlord. If the sublandlord defaults under the master lease, your rights to maintain occupancy are at risk.

COVID-19 Risk Assessment Overview

Risk #1

Slowed Response From Counterparties

Description: Response time from landlords, tenants, and potential real estate investors has slowed; Many are reluctant to make decisions in this environment and/or are focused on crisis management and personal matters.

Impacts:

  • Slow down in workflow and inability to close transactions on schedule

  • Risks to strategic program implementation timelines

  • Uncertainty regarding whether transactions in progress will move forward as anticipated

Risk #2

Landlord Financial Health

Description: Smaller landlords who predominantly rely on income from tenants could face financial challenges that make it difficult for them to perform.

Impacts:

  • Should a landlord become insolvent, a risk assessment should be conducted on landlord maintenance of the asset/center, profile of potential new landlord

Risk #3

Rental Rate Uncertainty

Description: Lease contracts you finalize “today” are being made in an environment of uncertainty around future rental rates.

Impacts:

  • Deferring new lease commitments by 30 or 60 days or more could possibly result in the ability to tap into lower market rents

  • However, this potential for rate reduction needs to be balanced against the risks of losing current or prospective sites if contracts are not finalized or renewal options lapse

  • Where possible, pursuing formal renewal notice extension dates from landlords in this environment can eliminate risk and allow the markets to settle before locking in new terms

Risk #4

Subtenant Financial Health

Description: Subtenants may be facing a loss of income and may be challenged to meet rent payment commitments or may even go out of business.

Impacts:

  • You should anticipate subtenant requests for rent relief, lease modification or even early lease termination in the coming months

  • A holistic and consistent approach to subtenant management should be created that considers financial, legal, as well as community relations/brand image impacts

Risk #5

Force Majeure Clauses 

Description: Most leases have force majeure clauses that spell out obligations of either party which may be waived in the event of an act of God, war, government action, or epidemic.

Impacts:

  • You should assess your obligations under force majeure, as well as your landlord’s/landlords’

  • If you are a sublandlord, you need to understand your obligations and which subtenant obligations you are required to waive

Potential Scenarios

**Outlined below are potential scenarios that may be brought on by COVID-19.**

1. Abandon Your Lease

  • If you choose to vacate a location due to COVID-19, you likely have no right to request a rent abatement. Ask your advisor to review your lease to be sure.

  • If you vacate, we recommend you submit a Waiver of Abandonment to your landlord citing COVID-19 as the cause for closure. While it’s unlikely landlords will file defaults, legal entanglements should be avoided at all costs.

2. Landlord Closes Your Building

  • In the unlikely event a landlord closes your building, your recourse is subject to the lease and the general law.

  • It’s possible you could claim Access to the Premises and Interruption of Services, but both are unlikely if the building was closed for public safety.

  • Enforcing a landlord default provision is unlikely to result in immediate relief because most agreements include the landlord’s “right to cure” within 30 days.

3. Building Shut Down (Directed by Government)

  • If the building shuts on government orders, the landlord is not at fault and you may have no recourse against them.

 

Requesting Rent Relief

**Your advisor will help you with the process, but here’s what you can do to prepare.**

 

  • Obtain the most recent Rent Invoice and 2020 Operating Expense Estimate (if available)

  • Be prepared to quantify the reduction in revenue you are experiencing as a result of the pandemic

  • List all other measures being taken to reduce controllable costs such as reductions in staff and employee compensation

  • Detail all other forms of relief you are seeking such as stimulus packages from the federal or state governments

  • Provide year-to-date financials and the past two years’ financial statements

  • If the premises is not being occupied, request abatement of parking, utility or janitorial charges

Leases In Process

**There are potential risks and opportunities for lease negotiations currently in process.**

Potential Opportunities

  • Delays may create leverage to renegotiate rental rates depending on the duration and severity of COVID-19 impact.

  • New site opportunities may come onto the market due to reduced market demand. However, the timeline for new opportunities to appear on the market is difficult to predict.

Potential Risk

  • Significant stalls in lease execution approvals within your own organization could result in losing sites in tight markets to other prospective tenants.

Renewal Delays

  • We recommend delays in lease renewals only be considered if landlords are open to providing an extension on lease option notice dates.

 

While 30- to 90-day delays in negotiations may create leverage to renegotiate rental rates, this potential benefit is outweighed by the risk of allowing contractual renewal rights to lapse.

 

Lease Administration & Rent Management

Accounts Receivable

  • A tracking mechanism should be implemented to reconcile subtenant rent invoices to subtenant concessions extended during the crisis. 

 

Landlord and Tenant Mail Correspondence

  • If your employees are working from home, you must have a process in place for checking the mail. If possible, arrange for the landlord to communicate with you via email to ensure no important notices are overlooked.

 

Formal Landlord Notice

  • Review all leases to ensure proper notice is delivered to Corporate Real Estate or Legal and not to the premises – this is common in international locations or in locations where sites are closed, or employees are working from home.

Wondering how COVID-19 can impact your businesses's real estate? At this time you need an expert on your side who will guide you step by step through your options. Get in touch with one of our brokers today.

CONTACT
SOCIAL

E: ottawa@cresa.com

D: 613.688.7200

130 Slater Street, Suite 1000

Ottawa, ON K1P 6E2

  • White Facebook Icon
  • White LinkedIn Icon
  • White Twitter Icon

Facebook

LinkedIn

Twitter