Landlords And Tenants Are About To Get A Lot Closer

The sometimes volatile landlord/tenant relationship is set to get a whole lot closer in the wake of COVID-19. And that’s a good thing, industry experts say.

“I think if this [coronavirus pandemic] drags forward for the next 30 to 60 days, every landlord is going to learn everything about their tenants,” Crown Realty partner Scott Watson said.

Watson, who runs the leasing/acquisition team at Crown, made the comment during a Wednesday webinar held by Bisnow.

The event, which also included RSM Canada partner Bryan Tannenbaum, Jones DesLauriers Insurance Management partner Scott Irwin and Colliers International Senior Vice President Tim Bristow, dealt with the wide-ranging topic of Commercial Real Estate Triage – Best Approaches From Industry Experts.

Inevitably, the relationship between landlord and tenant stole a lot of the focus, as renters struggle with no income and overdue rents, and landlords deal with mortgage payments of their own.  

The common message among speakers was the need for straightforward landlord-tenant communication. 

“Between landlords and tenants, you have to be proactive, you have to be creative, certainly flexible. How do we cooperate? How do we get through this together?” said Tannenbaum, who works primarily in the corporate restructuring, recovery and insolvency areas. 

“Start a conversation with your landlord. Make sure the landlord is fully aware of the situation. Be as transparent as possible, basically demonstrating that you’ve thought of everything. You’ve exhausted all options.” 

Tannenbaum pointed out that, in negotiating a potential rent deferral or rent holiday, not all landlords and tenants are experiencing the same difficulties. For example, renters who operate businesses deemed nonessential have no money coming in. 

“There are landlords that have tenants that are on the one side: movie theatres, fitness centres. And then on the other side, there could be medical facilities and retail facilities that have an e-commerce platform. They may be generating revenues.” 

In some cases, good communication can only take you so far. Bristow, who represents tenants and landlords in a strategic advisory capacity for Colliers, said a potential rental abatement or deferral might run contrary to the landlord’s mortgage agreement. Having no rent paid could put the lease in default.

Watson agreed. Still, he said landlords, having no current mortgage deferral options of their own, would not enter into a rental default conversation lightly. 

“There needs to be an understanding of what we are all heading through at this time. The hard part for the landlord is weeding out those who have big issues and those who see it as an opportunity.”

One unanswered question at this juncture in the pandemic is just how insurance companies fit into the whole landlord/tenant discussion. Are they, in fact, on the hook for a payout?

“That’s a real popular question the last couple of weeks. Probably a $500B-a-month question in North America,” said Irwin, whose insurance work is primarily in real estate and hospitality.

Irwin said the crux of the insurance payout debate lies with a property policy dubbed business interruption, which may or may not apply to a pandemic situation for both landlords or renters.

“I don’t believe with most of the policies the standard wording would either have exclusions for it specifically, or the insurer didn’t intend to pay a business interruption claim,” he said. 

Irwin said he is advising his clients to file a claim to preserve “your rights to pursue this further.” 

“So far there’s been a lot of hesitation for policies to be triggered,” he said. “We’ve had a couple of denials so far. I do believe this will be an act of discussion in courts.”

But before all that, the key to current survival in these trying times comes back to communication, be it landlord to tenant, or even between real estate experts.

“All of us have communicated prior to this webinar about helping each other out with different clients,” Bristow said of the speakers. “Collaboration starts with relationships. And relationships lead to proper advice and solutions.”