Best Practices
Survival Tip #14: Rent Relief Is Essential to Many Independent Restaurants
Restaurants with dining rooms facing reduced seating due to capacity and/or social distancing requirements are in trouble. The business model is now flawed. Sales potential relative to rent and other occupancy costs doesn't work anymore.
The good news is that many operators have successfully negotiated rent abatement terms and/or other concessions.
Here's a short list of ways to approach your landlord in seeking relief --
- Be open and transparent with your landlord. Be able to prove what you're facing. This means a Cash Flow and Profit & Loss Projections based on current sales volume and costs and expenses. Most landlords do not understand restaurant economics. Show them.
- Push for "abatement" not "deferral" of rent. Abatement is a permanent reduction over a specified time frame. A deferral, while helpful to immediate cash flow, just delays payment and you don't want more debt.
- If you've received PPP funding, offer to pay full rent during the forgiveness- period and have the abatement apply to subsequent months.
- Force Majeure Clause. If you've been following the restaurant trade media, your attention might be called to the "force majeure clause", typically boilerplate language included in contracts -- including lease agreements -- to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and restrict participants from fulfilling obligations, such as "an act of God, governmental control or other factors beyond the reasonable control of the parties". It may be wise to hold off on this unless your landlord is obviously going to play hardball in which case you'll need to involve an attorney who can examine your lease for this clause.
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May 2020 Restaurant Startup & Growth
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Everything is negotiable. Whether or not the negotiation is easy is another thing.
- Carrie Fisher
Hopefully, you've been an upstanding tenant and you're on good terms with your landlord. The goal, of course, is to negotiate a way for everyone to survive and prosper in the future but you must know upfront what kind of a deal you need to make economic sense.
For more information on strategies to negotiate rent reductions and terms with your landlord, please see the recording of the June 2nd webinar, COVID19 & Your Lease.
