The COVID-19 pandemic has resulted in widespread economic disruptions, with many companies facing financial challenges and working hard to reset their businesses. If you are a corporate tenant or potential buyer of commercial office space, you should have a competent and experienced commercial real estate agent to represent your interests during and after COVID-19.
Reviewing Contracts & Special Language
Whether you have an existing contract in place with your landlord or you are planning to sign renewal documents, make sure you understand the language of the contract and the likely changes of any clauses in the backdrop of COVID-19. For instance, the “Force Majeure” clause is now going to be more critical than ever because it can temporarily protect you against non-performance when an extreme event occurs. This is also a reason to have a real estate attorney on your team in addition to a tenant broker.
How the applicable language of this clause is drafted will determine whether your rent payments may be suspended indefinitely or for a specific time period. The ideal way for a more tenant-favorable contract would be including events such as public health emergencies and pandemics in the Force Majeure clause.
Similarly, another important clause to consider may be business interruption insurance, which is often a part of a commercial lease. If your landlord requires you to obtain this insurance coverage as a tenant, you need to consider whether events such as COVID-19 pandemic qualify as a covered business interruption in the insurance policy.
Addressing Safety-Specific Space Concerns
In the wake of the COVID-19 crisis, you may be re-evaluating your requirements for office space. Make sure you have a knowledgeable tenant representative to work with you regarding what business terms can likely be achieved in the current market. You may also want to consider adding an architect to your team to plan urgent improvements to your current office space. Instead of having collaborative workspaces, you may want to enhance social distancing norms in your new office space.
At present, many landlords, likely with an extension or renewal of lease term, would be willing to negotiate and make the physical infrastructure changes that you want in order to address the safety concerns for your employees and visitors.
Re-negotiating a Current Contract
Due to economic conditions caused by COVID 19, the market may be titling in favor of a tenant. Some landlords have concerns that their existing tenants may shut down or downsize, which could leave them with huge vacancies. Therefore, if you are looking to renew a lease, re-negotiate a current contract, or purchase commercial space, the time is ripe for it now.
After understanding your business needs and site criteria, a dedicated tenant rep can gather current market information for your review, and guide you about negotiating the terms and conditions with landlords in the present market. They can also provide you useful information about how reliable a particular landlord is, which buildings have reputable property managers, and how these landlords and managers have responded to tenants during the pandemic.
With a Tenant Representative on your team you increase the chances of obtaining the best deal in terms of lease rates, rent abatement, tenant improvements, and various other special tenant incentives in the light of the prevailing economic conditions.
Evaluating Leasing vs. Buying
In the commercial real estate market at present, you might be able to find buying opportunities at very attractive price points. A more significant point is that Interest Rates for Mortgages are low. Therefore, it makes sense to perform an objective cost-benefit analysis to determine whether buying may be more financially advantageous than leasing for your long-term business needs.
A knowledgeable tenant rep will help you evaluate your options, with reasonable assumptions, so that you can make an informed choice between leasing and buying a new commercial space.