Covid-19 and therefore the consequent downturn forced many businesses to ask their employees to figure from home. The prolonged closure of offices led companies to rethink their real-estate obligations like rental overheads and maintenance. this example overwhelmed landlords with requests from tenants for help. Many landlords were accommodating enough to retain their tenants and were hospitable watching restructuring their leases.
The trend continues, with many commercial tenants opting to renegotiate their leases and capitalise on these opportunities before it’s too late. With times changing, lease-restructuring ideas are getting more innovative, creating a win-win situation for landlords and tenants alike. Offers aren’t limited to rent reductions, deferments or early terminations, but encompass various portfolio functions like financial reviews, managing critical dates and more.
Restructuring options at their creative best
Developers are creative in designing deals to retain tenants or attract new ones. Here are samples of strategic approaches to lease restructuring:
Rent abatement. The pandemic hit the pause button for the expansion plans of the many companies, compelling them to renegotiate better terms with their landlords. However, most landlords don’t find it financially viable to scale back rent and that they remain hospitable giving respite to tenants in several ways sort of a partial waiver of CAM (common area maintenance) charges. Simultaneously, landlords are offering a extended initial rent-free period to draw in new tenants.
Rent deferment. this provides tenants breathing space as they’re going to only need to pay this amount with or without accrued interest at an agreed point within the future.
Early termination. Despite tenants expecting landlords to barter or allow them to terminate their leases early, only a few landlords agreed.
Blend and extend. just in case of multiple leases with an equivalent landlord, tenants have the choice of blending rents, escalations and lock-ins to succeed in interdependent terms for the cumulative portfolio.
Burning the safety deposit. Adjust the safety deposit paid at the beginning of the lease against the rent payable until the deposit amount with the owner is reduced to a mutually acceptable level.
Rent escalation on warm-shell. a number one biotech company recently recognised that escalations are to be paid on warm shells and not fitted-out spaces because the worth of the furniture and fixtures is depreciating in nature.
How lease restructuring helps
Landlords can boost their property value by retaining tenants for extended leases. Moreover, many landlords see more security during a long-term lease because it doesn’t require them to travel through the arduous process of finding new tenants. While retaining tenants helps landlords avoid vacancies, tenants find relief within the current uncertainty while enjoying he continuity of their leases.
Restructuring leases provides more flexibility to both tenants and landlords who can align the terms with their future business plans. Both parties can ensure a point of stability during uncertain times and fluctuating economic conditions.
In recent times, businesses have already benefited from this approach. We anticipate that commercial lease restructuring will still be an optimal land strategy.