28 Apr Rent Relief
COVID-19 has brought the need to be ready for anything into the forefront of the world. Landlords have long been negotiating rent relief tactics for struggling tenants. The federal government has sent out moratoriums for evictions and foreclosures during this pandemic as well. Because of this, both owners and tenants are left in the dark about to validity of their contracts.
As we enter the hopeful period of rebuilding after a year long pandemic, landlords and real estate investors are worried about maintaining properties and keeping up with payments. All of this while unemployment continues to sit at record highs; tenants are also worried about making payments and their overall financial future.
Many claims of nonpayment may be exaggerated as well, as the National Multifamily Housing Council stated that 93.5% of renters paid in full in Feb of 2021.
As a Landlord, can you balance your needs with the tenants’ to navigate your way through challenging times together.
Challenges for Property Owners
There are 3 major issues for landlords during a recession:
- Rent collection becomes difficult
- Old tenants may desire to move
- It is harder to find new tenants
As a landlord, having policies and processes ready and communicated to the tenants for a market downturn is crucial. This gives you a legal and financial foothold in the event the economy takes a downturn and your tenants will be aware of their options ahead of time.
Types of Relief Plans
Having a rent modification arrangement ready is one possible idea. This along with a plan to handle utilities and other bills when rent becomes unreliable would go a long way.
During a long recession, many tenants may request rent relief. Here are some strategies to consider as a landlord:
- Rent Deferral: Deferring rent to another time. Based on a pre-arranged agreement with the tenant, they can pay in smaller installments or later in a large bulk payment.
- Rent Reduction: Reducing rent for a specific period over the lease is another option, whether that is in base rent of operating expenses.
- Loan Conversion: Converting past due rent and changing it to a repayable loan over a set term period.
- Rent Abatement: This is an outright forgiveness of past due rent.
Regardless of the approach, there are going to be tax implications to keep an eye out for. Due diligence should also be kept through the process. Do the work to make sure you do not have loopholes, either.
Importance of Rent Relief
Finding a workable package should be done as much as possible. Be understanding and retain your good tenants as much as you can.
Defaulting tenants are generally not considered for relief, but the circumstances of the recession have not made this workable. Most tenants are already in default or close to it when they need to start requesting relief. Make sure to document everything and make the details of the deal clear to tenants.
No one is immune to the effects of a recession. If your tenants are struggling to pay rent, paying your bills will become difficult. For this reason, make sure you make a contingency plan. Be prepared, flexible and have good communication and you can come out of a recession stonger than ever.
