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BBB business tip: What to do when you can’t pay — or collect — rent

June 05, 2020

The coronavirus pandemic has caused business closures, furloughs, stay-at-home orders, and layoffs. The result is many tenants are reaching the point which they are unable to pay rent. This poses a situation to small business owners who rent their place of business and are struggling to pay, as well as landlords who are watching their own source of income dry up if their renters are facing a difficult financial situation. In both cases, what can be done?

Understand local provisions for unpaid rent

Under normal circumstances, landlords can provide small business owners (and tenants in general) with notice when they miss a rental payment. If a tenant still fails to pay outstanding rent, the landlord can take action to collect unpaid funds or to have the tenant evicted. 

That said, the current pandemic has affected what is considered a “normal” procedure. Many states have issued eviction moratoriums, which could override the terms of the lease and keep tenants from getting evicted, for now. Check with local government to find out what provisions are in place and how long they will last.

Review the terms of the lease

The details of what should happen when a tenant fails to pay rent are all outlined in the lease agreement, so now is the time to review the terms of the lease. Each party’s options and legal obligations depend largely on what is written in this legal agreement. The lease may offer emergency provisions, suspending rent obligations during times of crisis or forced shut down. Such provisions are rare, but it’s worth reviewing just the same.

Renters, if a lease is unclear, consult with a lawyer to decipher it and to discuss strategies when negotiating with the landlord. If a renter can’t afford an attorney, information can be found at the legal aid resources from the American Bar Association and the Canadian Bar Association.

Keep the lines of communication open

Open communication is key, especially during an unusual situation such as a pandemic. Small business owners struggling to cover the rent should call the landlord to discuss the situation. For many landlords, working out an agreement is mutually beneficial, if it means the tenant’s business will survive when state-mandated stay-at-home orders are lifted. Some landlords may even be willing to suspend a payment, defer rent, or lower monthly payments for a specified period of time.

For landlords who have yet to receive payments from tenants, it’s wise to do the same. Get in touch and discuss the situation openly. Good tenants who are reliable will usually be willing to work out an arrangement to pay owed funds as soon as they get back to work or are able to. Even if coming to an agreement proves difficult, the first step to a solution is getting a clear understanding of a tenants’ financial situation.

Consider all options

Small business owners should take some time to evaluate finances to find a solution to the rent dilemma. After an honest evaluation, you may come up with an unexpected solution. Think about the following:

• Do you have savings you can tap into that will cover your rent or mortgage?

• Can you allot the money you received as a stimulus payment for essentials like rent and utility bills?

• Could you take out a low-interest loan with your bank to help you stay afloat and maintain your business for a few more months?

Landlords with struggling tenants should consider the following options. If circumstances still warrant evicting a tenant, consider this option, but keep in mind it will likely take longer to go through the legal process than it did before coronavirus hit. 

Instead, think about the following:

• Lowering your tenants’ rent to a price that covers your expenses but forgoes profit for the time being

• Forgiving one month’s rent

• Working out an arrangement that postpones rent payment, while eliminating late fees and penalties

Look for outside assistance

Some cities are now offering rent vouchers and emergency funds for renters in need. Find out if there are organizations in your area offering this kind of assistance for small business owners. Landlords can do the same research in behalf of renters. After all, if they get help, the landlord get rent.

In addition, landlords having trouble paying their own mortgage can get in touch with their lender to find out if they are offering any assistance to borrowers who have been affected by COVID-19. Some counties and states have extended the due dates for property taxes and eliminated late fees and interest. A quick visit to a local tax assessor’s website will tell you if who qualifies.

For more information

Find more tips on recovering, keeping safe, and growing your business, see our BBB.org/Coronavirus and our BBB.org/SmallBusiness. For further inquiries, contact the Wisconsin BBB at www.bbb.org/wisconsin, 414-847-6000 or 1-800-273-1002. Consumers also can find more information about how to protect themselves from scams by following the Wisconsin BBB on Facebook, Twitter, Instagram and YouTube.

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