Author: Dominick Reuter
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One in three small businesses is still struggling with rent payments as the economic impacts from the COVID-19 pandemic continue to drag on, according to a recent poll from the small business network Alignable.
The survey found that millions of businesses were unable to pay their rent in full, with the most affected sectors being food service, fitness, and retail. In addition, half of minority-owned businesses reported coming up short on January rent.
As a result, many businesses may find themselves “in arrears,” or with a backlog of unpaid rent looming over their heads, and more piling on every month.
For advice about how small business owners can more successfully negotiate rent relief during this economic downturn, Insider spoke with Robert Holzberg, a retired Connecticut Superior Court judge who leads the alternative dispute resolution practice at the law firm Pullman and Comley.
The firm also produced a video of a mock negotiation, presided over by Judge Holzberg, that shows how a commercial lease dispute would be handled and provides a few insights into how tenants and landlords can reach an agreement between themselves (or their lawyers) before getting third-parties involved.
1. Be prepared to compromise
The first thing to remember is that you shouldn’t expect to get everything you hope for, and that you should be prepared for a little disappointment.
“Both sides need to take a hardheaded, cold-eyed view of their case, and understand what their needs are, and what their realistic expectations can and should be,” Judge Holzberg said. “If either side is looking for a winner-take-all solution, it’s simply not going to work.”
If you’re behind on rent, you’ll likely need to negotiate some relief for past payments, as well as an adjustment to the terms of your lease going forward. To start negotiating, you can make a good-faith offer that would fully satisfy your needs, but you should be prepared to give some ground.
“If everybody leaves the mediation a little bit unhappy, then it’s probably a fair resolution because it means that everybody has compromised a little bit,” Judge Holzberg said, echoing an aphorism used among lawyers.
2. Understand your landlord’s obligations
Your landlord is likely to reject your initial offer, and for good reason — they are a business too.
“The goal is to try to find some area of compromise in which both the landlord and the tenant can at least satisfy some of their basic needs at the moment,” Judge Holzberg said. “If the demands at the beginning of the mediation are polarizing, which they often are, then that can create certain bumps in the mediation process.”
Not only does your landlord rely on rent payments for income, they often have their own mortgage payments to keep up with.
That may mean the landlord’s bank needs to be involved in the negotiation, putting some real constraints around the amount of leniency you can reasonably expect.
In the mock mediation video, the bank is able to restructure the landlord’s loan, but still expects payment in full, which means that any forgiven payments come at the landlord’s expense.
Demonstrating that you understand your landlord’s obligations could help motivate them to find a solution that keeps your business in place and making payments, which ultimately benefits the landlord and the bank.
3. A private mediator could save you money in the long run
If direct discussions with your landlord aren’t getting anywhere, consider seeking professional help before getting the courts involved.
Judge Holzberg stressed that while it is absolutely every citizen’s right to seek resolution through the judicial system, the decisions often result in winner-take-all outcomes that may not ultimately benefit everyone involved.
You may be reluctant to spend money on additional services when cash is tight, but a private mediator could help avoid even more costly expenses and legal risk from bringing your case before a judge.
Another consideration due to the pandemic is that some courts are operating with significant backlogs, which could result in longer delays for a judgement.
Having an independent referee facilitate your negotiations can give all parties involved the confidence that an agreement is the fairest possible outcome, even if it leaves each a little dissatisfied.
After all, the courts will still be there if the mediation fails to reach an agreement.
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