August 7, 2020

How Tenants Can Restructure Office Space Leases During COVID-19

It’s no secret that the world we live in today looks a lot different from what it did a few months ago. COVID-19 (Coronavirus) has completely altered companies’ needs for office space, with about two-thirds of the U.S. workforce working from home during the pandemic. Some studies suggest that between 25 and 30% of workers within the U.S. will be working from home multiple days a week by the end of 2021 once Coronavirus is under control.

With the lack of demand for office space, it is the perfect time for your organization to restructure your office lease.

After all, if you’re anything like the many businesses throughout the world, there is a chance you’ve lost money during COVID-19. Why should your company lose even  more  money during this crisis because you have an office lease that isn’t optimal? Restructuring your lease can help save you money and allow you to only pay for the space you’re using. It can also ensure that your landlord meets certain demands, such as proper air filtration systems within your commercial office space.

So, how do you go about restructuring your commercial real estate lease? Let’s take a look.

Why It’s Effective to Restructure Your Commercial Office Lease Space

COVID-19 has affected every single industry including, of course, commercial real estate. As the virus began and continues to spread, many workers who previously commuted to the office suddenly began staying at home, working with online tools, and utilizing virtual meetings to adapt to the stay-at-home orders. This showed many bosses, business owners, and managers who may have at one point been against working from home that it can, indeed, be done successfully. This shift in mindset is in turn expected to have a huge impact on the demand for commercial office spaces even after COVID-19 diminishes.

Many commercial real estate experts are concerned that the need for commercial office space could become completely obsolete. While that’s not likely to happen because, according to Kenan Institute of Private Enterprise, employees still see important benefits of working together in-person as opposed to Zoom meetings. Now is the time to leverage this climate as you review your commercial office lease.

It all starts by understanding the terms of your lease and figuring out what you want to restructure. Once you’ve done your due diligence, you can  approach your landlord about how to renegotiate your commercial office lease. This will help you to accomplish a concrete plan. It’s best to have a plan of action backed up by stats and comparisons of your area.

The Best Ways to Restructure Your Business’s Office Lease

Given the unique nature of the world’s current economic situation, landlords are more likely to be agreeable towards lease restructuring. To effectively engage with your landlord or property management company, you need to communicate exactly how you want your lease restructured. Consider approaching your landlord with one of the following options:

• Full or partial rent abatement. In this scenario, you could enjoy a temporary full or partial rent abatement. You can receive rent abatement off your base rent but may still need to pay for maintenance of common areas, real estate taxes, and insurance obligations. Rent abatement can be essential if you’ve been forced to close your business due to COVID-19 and no longer have revenue coming in. In this case, try to negotiate to have your rent abated until you resume business again.
• Rent deferral. Rather than having your rent completely abated, your landlord might be amenable to deferring the rent you owe for a specified period. In this situation, you might defer for two months, then in the third month, you’d owe three months’ worth of rent. Alternatively, some landlords will allow you to set up payment plans to pay back the deferred amount.
• “Blend and extend. ” With this, you can offset a temporary rent abatement or deferral by extending your lease term. For example, your landlord might agree to give you a rent deferral for six months in exchange for a six-month extension on the term of your lease. That way, they won’t have to worry about filling a vacancy, and you might have more time to pay back your deferral depending on how your agreement is structured.
• Early termination. In many cases, it just doesn’t make sense to continue to pay for commercial office space that you no longer plan to use. Rather than negotiating a restructuring of your lease, it might make more sense to seek tenant representation from experts who can help you get out of your lease completely. This is often a last-resort option for people whose businesses have little hope of recovery from the economic downturn caused by COVID-19.

If you’re trying to restructure your commercial office lease and need a little help, our team at Rakow Commercial Realty Group is on your side. We invite you to reach out to us and let us know what we can do to assist you during these unprecedented times.