Lease Space in Post-COVID Environment
Small businesses continue to adjust their operations to what may be the new normal. Social distancing requirements, health concerns and a potential shift to more businesses embracing remote working, limited travel, lack of interest in visiting restaurants and the continued trend of online shopping has significantly changed how business owners should view lease space.
Let’s be honest, we recognize that leases tend to be very landlord friendly, Right? The leases of yesterday are way too broad and do not address our new world. Therefore, additional language needs to be added. What about those lease terms or cost structure? There are so many variables that need to be considered when looking to lease space. Be honest, most times you probably only read a lease or disclaimer in detail when you are trying to find a way to get out of something. How many times have you just checked the box about reading the disclaimer so you can hurry up and move on to the next page?
This pandemic has significantly reduced the potential tenant pool for landlords, meaning there are likely more wiggle room as you look to negotiate terms. Additionally, the cost of increased measures needed to comply with guidelines is another area that needs attention. Therefore, below are several areas of potential negotiation and areas that need to be addressed to ensure you maintain a strong business.
Negotiate New Building Services (Maintenance)
- HVAC upgrades to improve ventilation
- Increased cleaning and janitorial services (increased operational expense)
- Common areas to allow for social distancing
- Re-evaluate and revise indemnification provisions to account for third-party COVID claims
- Extensive litigation of business interruption insurance policies; will insurers offer product to protect landlord and/or tenants from pandemic-related losses?
Assignment and Subletting
- Increased flexibility in provisions regarding assignment and subletting
Lease Security and Credit
- Landlords will probably look to increase their credit standards and request larger security deposits
- Explore potential early termination fee
Lease space in a post-COVID environment is a big decision. Make sure you approach any potential lease with your eyes wide open and try to negotiate as much as you can. Keep in mind that you may not get all that you ask for but make sure you ensure you have protections and fully understand the lease requirements.
Complete the Collin SBDC Client Needs Assessment for more assistance.