How office tenants negotiate a new lease after COVID-19

boston properties Jul 17, 2020

One man’s nightmare is another man’s opportunity. COVID-19 has caused havoc to spread like wildfire. Many industries feel left out in the lurch and no amount of printed money by the FED is going to solve this crisis. It's not just about paying bills and continuing to stay in business any way possible. It's also about employers and commercial real estate companies needing ideas to restore confidence in their clients, investors, executive board, and employees. They can do this by bolstering their commercial office portfolio. The consumers are ready and waiting and in fact, have been continuing to purchase via online e-commerce stores. For business owners, the main issue that is arising now is, seeing what they can do about their current leases. Should you go finding new offices or is it possible to renegotiate your commercial real estate contracts and financial obligations?

Try to haggle at first

Firstly, book an office tour and observe the space in person. Tenants looking for an office used for more than 6 months have to consider their options in multiple locations. The average price of office space square foot is around $30-45. If landlords in major cities, New York and Los Angeles, want to be competitive they need to offer a pathway to renegotiation rent prices. Finding new offices won’t be difficult so It will need to be closer to $30 during your office lease negotiations. Legal experts believe with this competitive pricing approach in mind, you may be able to have your landlord lower the price to this level. You should bring up this talking point during an office tour if you’re seeking a new contract.

However, for the most part, legally speaking, once a contract's signed, they're binding. They also account for risks and uncertain conditions which may befall the tenant. During office lease negotiations a lawyer may advise you to press forward with a ‘force majeure’. Which is a clause that deals with impossibility or impracticability. Essentially, the lease for your current renting office space is simply unable to be paid considering the pandemic and lockdown. Showing financial documents that detail abnormal and unavoidable losses through no legal fault of your own could scare a tenant into renegotiation rent talks. In America, the tenant renting office space would need to refer to express contractual provisions. These are designed to underscore performance hindrances but even these are specified under certain circumstances. In other words, you will need to have a provision which concerns ‘disaster’ or ‘in the event of an economic crash’ etc.

Everyone knows the situation

Tenants might want to seek a renegotiation rent of their leases or desire a new lease after COVID-19. Either way, they should take advantage of commercial real estate companies willing to shell out. Before you go finding new offices, consider commercial real estate companies like Boston Properties. They are pumping $1.25 billion into their business via unsecured notes, which means loans will be available for those renting office space from them. This could be something you could opt into if you wish to negotiate a lower lease price. This extra obligation would ensure trust with the landlord. Commercial office portfolio giants, Brookfield and jbg smith are both doing something similar to Boston Properties. JBG Smith is offering $2 billion in liquidity bolstering REITs in the DC area. While Brookfield is offering $5 billion to its retailers. Both commercial office portfolio giants are shelling out to see this crisis through. Now would be a good time to take an office tour in one of their high-rise office buildings or engage in office lease negotiations. The major real estate giants like Boston Properties, Brookfield and JBG Smith have the firepower to weather the storm, it seems.The bottom line is, many businesses will call on their counsel to advise them on how to manage the current situation. Essentially, everyone is in the same boat, landlords and tenants need each other to survive this crisis. You should try to haggle at first, but there are also legal routes you should try regarding contract clauses in impracticality and special hindrances.

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