Covid-19 has wreaked havoc on the restaurant world, and brands have been forced to have difficult conversations with Landlords regarding their existing leases. Needless to say, these types of conversations are made even more difficult because no one has a crystal ball that can tell us how long this will last, or the long-term impacts it will have on our industry.
It’s not unusual for a Landlord to request detailed financial information from a Tenant who is requesting modifications to their existing lease, in order to better understand the tenant’s current financial position and their ability to meet future lease obligations. Why shouldn’t Landlords have to do the same? Tenants should have visibility into the current and projected financial position of the asset in which they are located, especially in situations where the loss or hardship of co-tenants could increase their pro rata share of expenses not to mention the immediate impact on traffic due to building vacancies.
A lot has been discussed about how Covid-19 has impacted the restaurant industry, but what has not been discussed is the impact on their fellow retail and office tenants. This should be of real concern to restaurants that are renegotiating their existing leases, as struggling and shuttered retail and office co-tenants could leave them with a substantial increase in pro rata shared expenses that will have a profound impact on their already uncertain cash flow projections.
Landlords are currently pressuring restaurant tenants to sign deferral agreements without discussing the status of other co-tenants and how that may impact their financial projections. The restaurant and retail real estate market was already heading down a “rocky road” prior to Covid-19, and adding office tenants to the mix makes it an even more complex situation. Restaurants that are in a position to re-open need to take all of this into consideration and make the best decision possible for their business. Landlords need to be more of a “Partner” in order to preserve the tenants that will help carry them through and beyond these difficult times.