Impact of the pandemic on commercial lease renegotiation… a series

We are experiencing a period of critical change for business and we can see that things will never again be as they were. Each business model, whether “B to B” or “B to C”, will have to adapt to a new reality. We will have to innovate, change models, and make strategic decisions, whether to find a way back to profitability and generate the cash flow needed for meeting financial obligations or to attract resources to handle a heavier volume of business. This will be more difficult for some entrepreneurs than for others.

Various potentially advantageous options can be imagined, whether you are a landlord or a tenant and whether your premises are office space or industrial or commercial use.

In this first edition, we will consider the position of tenants.

The first thing tenants must do is ask themselves several strategic questions:

– Is my space still suited to my operations?
– How is my business or industry going to change over the next few years?
– What improvements do I need to make in my spaces to achieve better performance?
– How will my customers respond after the pandemic? What will their new consumption patterns be, and what new expectations will they have of my services?
– How will telework and the use of technology affect my business and my business model?
– How can I protect my employees’ and customers’ health and safety in my spaces?
– How do I attract and hire new talent?

What are the alternatives? Negotiate…

1. A reduction in the space, or subletting part of it?
2. A reduction of the base rent and deferral of the difference to the end of the lease?
3. A rent adjustment, for a specified period, based on a percentage of sales (commercial premises)?
4. Severance of the lease, for spaces located in different buildings (satellite offices)?
5. An extension of the term, with equalization of the base rent?
6. An extension of hours of service in response to demands for flexibility?
7. Leasehold improvements that are adapted to current needs?
8. Obtaining certificates that systems comply with sanitary requirements?
9. Access to specialized common spaces and/or janitorial services?

We can adapt a variety of real estate solutions for each tenant based on the tenant’s operations.

The authors

Chantal Cousineau
President CREW M 2021
Partner at BDO Canada Leader real estate and construction – East of Canada

And

Alain Côté
Senior Vice-President, Real Estate Broker – Commercial at NAI Terramont Commercial