When the pandemic broke out, the wave of unemployment surged, affecting people of all sectors, and business class people bore the worst impact as they had no opportunity to work from home. Clueless about the normalcy of the economy, commercial tenants struggled a lot.

They were already feeling a pinch in their pocket, and keeping up with rent payments was not that easy. As a result, tenants reached out to their landlords to put in requests for a rent reduction. Though that deplorable phase has passed, landlords keep receiving requests for rent reduction from their tenants.

They always have a reason to be unable to pay rent for a particular time period and therefore keep asking landlords to give up a share of rent temporarily. It can be quite difficult for you to deal with such requests. Sometimes tenants may have genuine reasons, but some tenants may try to make unnecessarily ask for such favours in order to avoid paying full rent.

Tips for managing commercial clients’ requests for a rent reduction

You may receive requests about rent reduction many times from your commercial tenants, but they cannot be genuine all the time. Well, here are some tips for dealing with such requests:

  • Be proactive

It is vital to be proactive than take action when a problem arises. During the pandemic phase, you must have noticed that tenants can come up with such requests whenever they think they cannot pay the rent. Because you are well aware of their tendency, you should be proactive.

A rule of thumb says that you should clearly mention the clause about rent reduction circumstances in your agreement. Most of the landlords keep it open to discussion and hence do not specify it in the agreement, but this is what commercial tenants take advantage of.

If you have already specified the eligibility criteria for rent reduction in the agreement, tenants may not be able to make unnecessary demands for it. If you want to behave a bit strictly, you can clearly express in your agreement that this kind of request will not be entertained. If multiple properties are under your aegis of you, you must have a property manager.

In this scenario, you can ask for a written request to be submitted to your property manager who will track each tenant’s request. Tell your property manager how to decide whose request will be entertained or whose will be cast aside.

  • Terminology must be understood

Terminology can be confusing. Your tenants likely misinterpret the term; therefore, you should clearly express what you mean by the term mentioned in the agreement. Here are some terminologies you, your property manager and your tenants must know.

  • Rent freeze: It means the rental amount will not increase at all. Tenants will be responsible or making rental payments.
  • Rent abatement: It means the tenant does not have to pay rent at all or reduced rent for a limited time period.
  • Rent holiday: It means you are not obliged to pay rent for some time. The landlord decides the time period, and it varies by the landlord.
  • Deferment of rent: It means that a certain percentage of rent is not payable for some time. However, it will be paid down the road. Unlike rent holiday, the lease term is extended in this clause.

The deferred payment cannot be given up. You will have to ask your tenant to pay it off in a lump sum or by increasing subsequent monthly payments. If a tenant is past due on its rent for a couple of months, you can completely forgive the arrears.

Well, before you rent your property, it is your responsibility to check the creditworthiness, financial condition of the tenant, and economic viability. It is recommended that you review the bank statement of the tenant to check if they can afford to pay rent.

Ask for their credit report from credit reference agencies to see their past payment records. Though you can choose a couple of methods to address the request for a rent reduction, the best one is deferred payments because it provides you with a chance to get those payments down the line. In the interim, you can take out emergency loans with no credit check if you need money to borrow.

  • Understand your situation

Your tenants may have their own reasons for asking you to put a pause on rent payments temporarily, but you can make any decision by heart. You need to understand your own financial situation as well. Because you are a landlord, it does not mean you cannot face financial problems.

For instance, you may have lost your job, or your business is running on empty. In such circumstances, you will need money to get by. Of course, when rent is the only income for you to survive, you will unlikely be able to give up a certain percentage of rent temporarily.

Even if your tenant has a genuine reason, you should not allow for it if it results in taking out installment loans no credit check direct lenders only. Looking at your financial situation before allowing for rent reduction is always suggested. If it is not going to affect your finances, you can reduce the rental payment, but otherwise, it will take a toll on your financial condition.

  • Be flexible

Being flexible is the key to dealing with this situation. Although rent reduction may have a clause in the agreement, your landlord may easily deny you based on your circumstances. A rule of thumb says that you should be flexible, so it does not affect the financial condition of a landlord or a tenant.

Note that there could be certain limitations in the law that your tenant can take advantage of in order to escape rental payments. Talk to your legal advisor, so you know what you are supposed to do. You must ask them before putting a clause of rent reduction in the agreement.

Factors to consider before incorporating a deferral rent agreement

Though a deferred rent agreement is more favourable, you should still need to consider the following factors:

  • Deferred payments are repayable over a period of time on a specific date. It may take at least six months to get that money back.
  • If a tenant receives any kind of government support, they are responsible for informing you of it and paying a portion toward an outstanding balance.
  • You can ask for a guarantor as additional security if the tenant dodges paying back the amount.
  • You should add a clause in the agreement to prevent the tenant from disclosing the terms to others.

Some additional tips

The following tips are intrinsic to bear in mind at the time of dealing with such requests from commercial tenants.

  • From your tenant’s perspective, there could be urgency. Still, it does not point out that you will not attempt to check their creditworthiness and current financial situation before entering into the agreement.
  • Since you are reducing rent payments, you have an opportunity of modifying other terms. Leniency on one term could mean strictness on another term.
  • Ensure that you do not end up waiving the deferred rent down the line. Try to frame the clause in a way that your tenant does not avoid their obligations.
  • Try to have all terms and conditions in writing that bears the signature of the tenant. If they refuse to have it in writing, it should raise an alarm bell that they want to escape.

The bottom line

It is imperative to critically analyse the financial situation of your tenant before granting them a rent relief, but at the same time, you should analyse your financial condition too. For instance, if you have borrowed money to buy that commercial property, it will likely be harder to entertain such requests because you may be throwing the rent amount at your debt payments.

Talk to your legal consultant before making any kind of agreement. Having everything cleared at the time of signing the lease will let you know your rights and how you can prevent them. Keep the tips mentioned earlier in your mind so you minimise the chances of losing money.


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