If you want any of your favorite small retailers, restaurants, bars, and service businesses (for example, nail salons) to be in business after COVID loosens its grip on on America, the most important thing local jurisdictions can do right now is to issue a moratorium on commercial evictions.
WHY IS TIME OF THE ESSENCE?
Rent is due April 1. Depending upon the lease, many tenants may be evictable under their leases within 5 days of not paying full rent under the lease.
And why is that a problem? Because almost NONE of these restaurant, service, and retail businesses are going to be able to pay their full rent in April. No one who operates these beloved businesses (that are the very fabric of our community) is doing it to get rich. These establishments are owned and run by people whose businesses make it month-to-month—managing cash flow is always a challenge. In March, many have already seen their sales plunge, in some cases to $0. And remember, this has occurred in an unprecedented fashion, in the blink of an eye. Not a slow easing, or a gradual decrease in sales, as happened before the Great Recession. And, no one has any idea when sales will start back up again, and at what level.
Many of these businesses have already had to close, layoff all of their employees, and think about how to pay for inventory loans and tenant improvement loans in addition to rent. Not to mention, business owners have no personal income coming in during this time.
And now small business is supposed to make decisions about what to do with their holdings, determine whether the business can start back up again… when their business might start back up again, whether it can be remade into something else during the COVID crisis… literally do all of this in days with the threat of eviction hanging over their heads. This is not acceptable, especially when these business owners have their entire net worth tied up in loans, inventory/food, and lease obligations.
IS THIS REALLY NECESSARY?
In a word, Yes! Not all property owners are rich land barons. But as a whole, property owners are typically in a much better financial position than small business owners. And without a commercial eviction moratorium, small business will be 100% at the mercy of the worst behavior of property owners.
I am already seeing this less than helpful behavior on the part of owners in the emails I am forwarded by tenants seeing advice:
- Property owners who are not proactively reaching out to their tenants.
- Property owners who are not engaging with tenants when they are being begged for rent relief for at least April.
- Property owners who are trying to tie tenants into long term agreements for reduced rent, the balance being added to future rent. This is tantamount to tenants taking on even more debt without any real idea of when they can reopen and what sales will be like at that time.
- Property owners who are issuing lease addenda with small concessions that come with strict confidentiality requirements for tenants.
- Property owners saying, “Sorry, you should have saved more money.”
HOW BAD IS THE LOSS FROM A LOCKOUT?
Most people have no idea that many kinds of spaces require expensive buildouts, the costs of which are entirely borne by tenants. If someone wants to start a restaurant, or a dentist or a beauty salon with a lot of plumbing, they are usually on the hook for hundreds of thousands of dollars in tenant improvement loans to construct their space.
The value of these buildouts are sometimes the only equity that these businesses have. If a landlord locks a tenant out, then that tenant cannot recoup their investment through the sale of their business. Instead, an owner would get a valuable space that would eventually be highly desirable and leasable, at no cost to the landlord to build out. We need to be sure that we are protecting the significant investment that restaurants, hair salons, and others have put into building out their space.
I want to be clear that many property owners understand they are in business with their tenants (not in a legal sense, but in a “rising tide lifts all boats” sense). And there are great stories of landlords working with their tenants. But we have to protect small business from those who are not collaborative because the stakes are just too high.
This is not business as usual. This is not even a typical recession. This is an unprecedented halt to commercial activity for an unknown period of time. We need new tools. We need new approaches. And we need to make sure the most vulnerable among us are not trampled. For us to work together going forward, small businesses needs the spectre of eviction removed from the equation as we determine the most equitable way to put worldwide commerce on hold.
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