How to navigate office leases during COVID-19

There is an opportunity to be proactive and limit your financial exposure by negotiating with your landlord

As local health and government officials continue to implement new guidelines to help reduce the spread of COVID-19 in Colorado, thousands of companies are trying to settle into a new normal for their workplace operations. As food and beverage and retail companies adjust to new methods of delivering their services and products to consumers, office tenants are experiencing a huge shift towards working from home for their employees.

Navigating this new reality raises serious questions: Will we make it through this? Are my employees OK? What does this mean for productivity? How will this impact my team’s culture? How do I continue to motivate? What are our opportunities for business growth?

And one more big question: What do I do with my office lease during the COVID-19 outbreak?

As non-essential businesses across the state are closing their doors following the governor’s stay at home order, office spaces are emptying out. With real estate being one of the top expenses for any company, many business leaders are wondering what their options are.

While there are very limited legal options you can exercise during this time, there is an opportunity to be proactive and limit your financial exposure by negotiating with your landlord.

Assess your current situation

How you approach this conversation with your landlord will depend on your current status considering the evolving situation. It’s important to look at how your company is responding and adapting now, as well as what your needs will be in the coming three, six or nine months. Be prepared to document the economic impact that this situation has had or is projected to have on your business, as well as any additional measures you’ve taken to mitigate your financial risk.

Read your lease agreement

Unfortunately, there is most likely no protection for this type of scenario included in your lease agreement, even if there is force majeure language. If you have an attorney, have them review and provide insight into your legal options (which, per our current understanding, are extremely limited).

Name your best-case scenario

While this is a new situation for everyone, decide what your best-case scenario would be for your company in terms of your office lease. Then, work with a trusted broker to help craft what those terms would be to present a clear, concise proposal to your landlord. Try to secure a deal that will not only provide you with the short-term relief you need, but also set you up to weather the duration of the crisis. Having to go back to your landlord multiple times over the coming months will become less productive and make results more difficult to achieve.

Negotiate with your landlord

Landlords are particularly busy during this time making sure their buildings are safe for their tenants and trying to figure out the ripple effect of COVID-19 on their properties. Some landlords may be willing to work with their tenants, while others may not. In the Denver metro area, there are multiple examples of landlords already offering rent abatement or reductions in payments.

 

As this situation continues to unfold, many landlords and lenders are recognizing a need to work together to keep businesses open and the economy running as best as possible. While there are multiple factors that will dictate how office leases can be amended, being proactive is the single most important step any tenant can take.

 

Andy Cullen offers more than 17 years of experience in commercial real estate brokerage. He leads Tributary Real Estate’s brokerage service division, setting company strategy and supporting the success of the brokerage team in delivering positive results for clients through a personalized service model.

Categories: COVID-19, Industry Trends, Real Estate