Uppercase Guide: Managing Your Lease in a Pandemic

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Uppercase COVID-19 Retail Guide for Founders | May 2, 2020

Rent challenges during Covid - Uppercase Guide:  Managing Your Lease in a PandemicYour monthly rent is likely one of your larger expenses. COVID-19 has forced non-essential businesses to close in most states in the US and provinces in Canada. It's important to take the right steps and know what options you have as well as understand your landlord's perspective.

Rent Abatement

Rent abatement is the reduction of your monthly rent. This is your best case scenario and depends heavily on your landlord, and if they are in a position to provide reduced or free rent. Typically, landlords will reduce the rent to an amount equal to their costs of holding the property. This is a partial abatement or rent reduction. A full abatement would mean not charging you rent for a specified period of time.

Asking for rent abatement is the best first step you can take. It's not likely that your landlord will be pleased to hear this, but in this time they should expect it. The worst thing they can say is "no" and then you have a chance to open up a discussion about rent deferral.

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Example

  • On May 1, 2020, your rent payment of $10,000 is due.
  • You ask your landlord for rent abatement, and they agree to a 30% reduction.
  • An amendment to your existing lease agreement is signed by both you and the landlord to agree to this.
  • On May 1, you pay your landlord $7,000. $3,000 has been abated and will not be due at any point in the future.

Rent Abatement + Extension

If your landlord is not open a rent abatement due to financial obligations they have or because of the immediate loss of revenue, you can ask for abatement in the short-term with an extension of your lease agreement to provide them with some guaranteed revenue in the future. This is not a typical ask but is something that your landlord may consider. Your landlord may ask for increased rent during the extension to make up for a portion of the abatement. This is still beneficial as your main goal is to reduce current financial liabilities while your storefront remains closed.

Example

  • On May 1, 2020, your rent payment of $10,000 is due. Your lease agreement ends on Dec. 31, 2020.
  • You ask your landlord for rent abatement, and they agree to a 30% reduction for May but only if you extend your lease with them for the amount of time they provide rent abatement.
  • You agree to this. This means that your lease will now end on January 31, 2021.
  • An amendment to your existing lease agreement or a new agreement is signed by both you and the landlord to agree to this.
  • On May 1, you pay your landlord $7000. When January 2021 rent is due, it will be $10,000.

Rent Deferral

Rent deferral is when your landlord agrees to defer your rent payment to a future date. This is a temporary reduction in rent due, with the expectation that it will be paid back in the future. The rent that is deferred is referred to as accrued rent or deferred rent.

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Amortization vs. Lump Sum

Amortization

Rent that is deferred has to be paid in the future, and payment can be amortized or paid in a lump sum. We recommend that you ask your landlord to amortize the rent payment.

Amortization means that the amount of rent you must pay in the future is spread out over the course of several months.

Example - Amortized Rent Deferral

  • On May 1, 2020, your rent payment of $10,000 is due.
  • You ask your landlord for rent deferral, and they agree to defer the payment. The payment will amortized over June, July, and August 2020.
  • An amendment to your existing lease agreement is signed by both you and the landlord to agree to this.
  • On May 1, you don't have to worry about sending your landlord a rent payment.
  • For June, July, and August 2020 rent payments, you will owe the monthly rent of $10,000 + $3,333.33 for a total of $13,333.33.
    • The $10,000 deferred from from May is being split up and added over the course of the following 3 months.

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Lump Sum

If rent is deferred and your landlord doesn't agree to amortize it over future rent payments, it will be due in a lump sum payment. This will provide temporary relief but will cause rent to spike in the future when the total deferred amount is due.

In the example above, if the landlord required a lump sum payment of deferred rent, then the $10,000 owed for May would be due alongside a future month's rent payment. So you would pay $0 in May but $20,000 for a future month's rent.

Email us at covid19@uppercasehq.com — We are here to help.

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NCFA Jan 2018 resize - Uppercase Guide:  Managing Your Lease in a Pandemic The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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