Most landlords want their tenants to stay afloat, but they may face financial consequences if they lower rent. Many recent retail projects carry heavy debt loads, and those loans were underwritten by lenders on the basis of the full occupancy levels and high rents of recent years, said Caroline Dreyfus, a partner at Cox, Castle & Nicholson.
Some landlords can't lower rents without the lenders' permission. Others risk devaluing the property below levels required by the loan agreements. Many owe more than the property is worth.
Small tenants also need to keep in mind that just because their sales are down, that doesn't necessarily mean they are paying too much rent.
Landlords track the occupancy costs, or the average share of costs that rent makes up, for different industry sectors.
"You might have a restaurant who's done really well and sales may be off 25% but occupancy costs are still in range for that category," Limburg said. In that case, a landlord might be less receptive to rent cuts.
Those that agree probably will want something in return. A 20% cut in rent for six months might be made up by extending the lease or raising the rent in the future.
Even if your request is granted, "it can open a Pandora's box and unfortunately leave a lot of hard feelings," Limburg warned. To minimize the potential damage, be prepared to prove a real need.
"To say, 'I need rent relief because my neighbors have gone vacant and the market is different' just doesn't cut it," Limburg said. "It really has to be shown to be an economic hardship."
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smallbiz@latimes.com
