We are experiencing unprecedented times. The global health and economic crisis caused by the COVID-19 pandemic is something the likes of which our generation has never had to confront.

Two of the business sectors most profoundly impacted have been retail and real estate. And no place has felt the impact more profoundly than New York City, which essentially shut down for the better part of the past seven months and is only now slowly beginning to emerge from widespread local and state-mandated closures.

Retail tenants have had to employ a myriad of strategies to navigate these many months of shuttered stores and little or no business, while still adhering to the obligations under their leases. Unexpected business interruptions and hindrances, such as a pandemic, do not erase a tenant’s obligations under a lease. It is, therefore, important to consider all of the “what ifs” when signing a lease, as far-fetched as they may seem at the time. Notwithstanding looking towards the future, tenants must deal with the here-and-now and get through the current challenges presented.

On March 20, 2020, New York Governor Andrew Cuomo ordered a moratorium on evictions restricting landlords from evicting tenants for any reason, including unpaid rent. This order has now been extended until October 20, 2020 for commercial tenants, making it an optimal time to engage with landlords for assistance.

Having spent more than three decades representing and serving the needs of both retail brands and landlords in New York City and around the U.S., I have found that, in normal times, collaboration and understanding the interests of both parties leads to a common goal, in most cases an executed lease. Entering a lease is a partnership between a tenant and a landlord, and, while the lease contains contractual obligations, it also represents a relationship with mutual benefit. The challenges of the pandemic have put pressure on tenants and landlords to meet their respective obligations to each other, and in some cases, for landlords to meet the obligations they have to third parties. The situation has also necessitated tenants and landlords come together to see how they can help one another and share the burden during this time.

There has been much recent news about tenants filing lawsuits to exit leases and landlords filing lawsuits over unpaid rent by tenants – all due to the pandemic. These efforts are not the ideal way of resolving the challenges presented to either party. I have been working with many of my retail clients as they seek landlord assistance to get through this turbulent time. Companies have different needs, based on their size, resources, capabilities, and long-term business plans. Some of my clients are seeking to stay in their spaces, while others are looking to be released from their obligations. Regardless of your company’s circumstances and objectives, it is important for you to understand the considerations and opportunities available to you.

Renegotiate Lease

There are several terms of a lease that can be renegotiated to help reduce the rent you are paying.

One approach is to ask for a reduction in rent based on current market conditions. Be prepared to present lease comparables to your landlord. For example, if a similar space to the one you are now occupying is renting for 50 percent  of your pre-COVID-19 asking rent, you can demonstrate that a better deal is now available elsewhere. While the goal is to get the rent reduced, it is important for you to always be prepared to leave.

A short-term relief, which I have found many landlords willing to offer is percentage rent, where the tenant pays a minimum rent (i.e., 50 percent of the base rent) plus a percentage of sales until business stabilizes. Once the tenant starts performing, the landlord shares in that upside. Historically, landlords have avoided percentage rent structures as these deals can impact their valuations however, they are not viewing this concession as long-term, but as a necessary accommodation to ensure short-term cash flow and help keep a tenant in place.

If you have flexibility with the term of your lease and you are paying a below market rent, you might be in a position to negotiate a rent reduction in exchange for giving the landlord the option to terminate your lease with a predetermined notice period. While not for everyone, this scenario is a good way to reduce your rent now if you have flexibility with term length and were contemplating a move for the future.

Negotiate Rent Abatement and Deferral

Rent abatement, or free rent, is one of the most favorable of COVID-19 landlord concessions as you can work with your landlord to determine how the abatement is spread out (i.e., three months 100 percent abated or six months 50 percent abated, etc.). In this scenario, you are telling your landlord you will pay, you just need time. It is the most advantageous in preserving cash and not having to repay any rent later. I have found landlords are often resistant to rent abatements as they have obligations to their banks and lenders; despite this, it is critical for you to push for the maximum abatement the landlord will accept. In turn, you should be willing to offer an extension of your lease in exchange for the abatement.

While back-rent deferral may seem appealing if it is all a landlord is offering, it is not an ideal scenario as you will need to re-pay the rent at a later date. The better strategy is to negotiate the abatement in exchange for adding term.

Negotiate a Buy-Out

If you want to rid yourself of the lease entirely and are prepared to walk away from the space, a buy-out may make the most sense. Calculate the remaining balance owed on your lease, compare it to what you can afford to pay, and use this to negotiate a buy-out with your landlord. Be prepared to explain why your leaving is better for the landlord, as they can perhaps get a better tenant and possibly a higher rent.

Exercise Force Majeure

Force Majeure, as defined by Cornell Law School, is “a provision commonly found in contracts that frees both parties from obligation if an extraordinary event prevents one or both parties from performing.” These events must be unforeseeable and unavoidable, and not the result of either parties’ actions, hence they are considered “an act of god.” Despite the definition, this clause is not exceedingly common in retail or office leases and rarely allows for the excuse or delay of paying rent. Look at the provisions in the force majeure clause of your lease to determine if it references pandemics; if it does, you can try to obtain relief from lease payments, however I have not seen this force majeure option exercised often with reference specifically to COVID-19.

Bankruptcy Filing

In the past several months, there have been numerous bankruptcy filings from companies such as Neiman Marcus, J.Crew, Brooks Brothers, Century 21, Lord & Taylor, and many more. Some are ceasing retail operations and closing for good, while others have filed under Chapter 11, commonly used by larger companies allowing for the business to reorganize, remain open, and repay creditors. While landlords have traditionally relied on the bankruptcy code to collect on retail lease obligations, there have been several recent post-pandemic bankruptcy court decisions that have allowed for rent deferrals. This typically should be a last resort, however if a business is nearing or in bankruptcy this can be helpful leverage with a landlord.

With any of the above, the process is lengthy. Renegotiating a lease, or negotiating an abatement or a buy-out can be months-long processes. Patience, persistence, communication and collaboration is key in achieving a result with which you are comfortable.

Overwhelmingly, landlords want to maintain their tenancies, particularly if the retail lease is a major component of the asset or it serves as an amenity to building tenants and the neighborhood as a whole. It is not in the landlord’s or the tenant’s interest to have surrounding vacancies, particularly if they are both hoping to bring people back to the city and neighborhood. Current conditions and retail closures have spurred vacancies throughout the city and put tenants in the favorable position to negotiate. Landlords know this and are, therefore, willing to entertain discussions of concessions; they want to work with you as to achieve a mutually beneficial outcome.