Navigating rental arrears for a commercial property can be a daunting experience, especially for business owners juggling financial challenges. Unlike residential tenants, commercial tenants have fewer legal protections, making it critical to fully understand the terms of your lease. Here’s what you need to know if you’re falling behind on rent.

The 15-Day Rule and Potential Lockouts

One of the most important differences between commercial and residential leases is the speed at which a landlord can take action for nonpayment of rent. In many jurisdictions, commercial landlords have the right to lock the doors after just 15 days of missed rent. This provision is often included in the lease agreement, so it’s vital to familiarize yourself with the specific terms.

That said, many landlords prefer to work with tenants rather than immediately resorting to lockouts. Open communication and a willingness to resolve the issue can often lead to an opportunity to make your rent whole again, keeping your business operational.

Selling Your Business While in Arrears

If you’re looking to sell your business and are behind on rent, the situation becomes more complex. Typically, the arrears will need to be cleared from the proceeds of the sale before the transaction is finalized and the lease assigned to a new tenant. This means that any agreement with your landlord regarding rental arrears must align with the sale timeline. Ensuring that your landlord is on board with the sale is essential to avoid delays or disputes during the process.

Negotiating Rent Abatements or Deferrals

In challenging times, some landlords and tenants agree to rent abatements (reductions) or deferrals (postponements). If you’re exploring this route, make sure the terms of the agreement are clear, concise, and documented in writing. Verbal agreements can lead to misunderstandings or disputes down the road, particularly if there’s a change in property management or ownership.

Best Practices for Tenants Facing Rental Challenges

1. Understand Your Lease: Take the time to review your lease agreement thoroughly, focusing on clauses related to nonpayment, lockouts, and arrears.
2. Communicate Early: Proactively inform your landlord of any financial difficulties and explore options for temporary relief.
3. Get Legal Advice: If you’re unsure about your rights or obligations, consult a commercial real estate attorney for guidance.
4. Document Agreements: Ensure that any revised payment plans, abatements, or deferrals are recorded in writing and signed by all parties.
5. Plan for the Future: Whether it’s restructuring your business or preparing for a sale, align your financial strategy with your lease obligations.

Navigating commercial rental challenges requires a proactive approach and a clear understanding of your lease terms. By staying informed and maintaining open communication with your landlord, you can address issues effectively and safeguard your business’s future.

If you’re facing rent challenges, our team of experienced commercial real estate professionals is here to help. Contact us today to learn more about our services and how we can support you.