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Category: COVID-19, Leasing, Net Lease Retail Tags: Coronavirus, COVID-19, landlord, net lease retail, QSR, Quick Service Restaurants, tenant

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As we approach the first of a new month and the COVID-19 shut-down prolongs, many tenants and landlords are seeking creative solutions that allow both parties to remain viable. With the talks of opening up America, capacity levels will be limited and enforced, thus eliminating retailers from going back to pre-coronavirus business. In April, many tenants announced they wouldn’t be completing their rent payments, and May will be telling as far as how many other retail tenants will announce they won’t be completing monthly rent obligations. Despite this temporary loss in rent procurement, landlords are still obligated to pay the mortgage, highlighted below are some creative rent structures to help both landlords and tenants during this trying time.

According to CoStar, retail landlords in the U.S. typically collect more than $20 billion per month in rent. But in April, landlords only collected between 15 to 30%, and it’s expected to get worse in May. According to Datex, of the 118 major retail chains included in their database, 16% of tenants did not pay April rent, while 53% of tenants paid all April rent costs.. And, according to the Wall Street Journal, many owners of malls and shopping centers have been putting together a “blacklist” of financially stable tenants that haven’t met their April rent obligations.


Rent collection varied widely across fast-food chains:

  • Five Guys paid 17% of it’s rent, after paying all rent in March
  • Jamba Juice & IHop paid over 20% in rent
  • KFC paid 87% of rent & Panda Express paid 63%, after both paying 97% in March
  • Chili’s paid over 57%, down from 90% in March
  • Chipotle, Chick-fil-A, Domino’s & McDonald’s not only paid full rent, but paid more overhead costs than March
  • Subway paid 26% in rent, despite announcements that they wouldn’t be paying


For landlords, some lenders are offering 90 days of interest-only payments, and franchisors are reducing or eliminating franchise fees. There is a lot of flexibility with regional banks that are offering certain fee waivers and payment deferrals. At the same time, there’s less flexibility from Wall Street commercial mortgage-backed securities (CMBS) funds and large institutional lenders. So far, about 11 percent of CMBS retail property loan borrowers have been late with their April payments, according to Trepp, which means there’s $13 billion in CMBS loans that could miss their monthly payments if the pace holds up.

How landlords can respond

  • Rent Reduction– The landlord reduces the tenant’s rent for a portion or all of the term left on the lease. Usually, it is a rent reduction to the base rent, operating expenses, or both.
  • Rent Deferral- Particularly for hard-hit restaurants and retail properties, rent deferral allows the landlord to defer a portion or all of the tenant’s rent, but requires them to repay the rent deferred at a later time, either in a lump sum or by increasing subsequent payments. Often, it is a three-month deferral with the payments either tacked on to the end of the current lease term or amortized over the balance or a portion of the remaining term.
  • Rent Abatement– The landlord forgives a portion of the rent. This is rarely accruing and for the most part, and typically landlords want something in return for pure abatement. This could include the tenant agreeing to extend their term in exchange for rent abatement.
  • Partial Rent Abatement– The landlord forgives part of the rent, say 50%, but usually this is tied to the responsibility of paying the 50% in a timely manner.
  • Loan Conversion– A landlord converts the past due rent into a loan payable over time. The tenant would continue to pay rent, but the loan is essentially a promissory note that is cross-defaulted with the lease.
  • Application of Deposit– If the landlord holds a deposit, this amount is credited against the tenant’s current rent
  • Sublease– Allows the tenant to bring in a new tenant to reduce or eliminate rent obligations while replacing revenue for the landlord.
  • Percentage Lease Clause– The tenant pays a reduced rent, but a percentage of the tenant’s monthly sales volume goes to the landlord to complete the base rent.
  • Renegotiation of Lease Term­– For successful long-term tenants, lease terms can be renegotiated and extended. This structure would give tenants a break over a few months and then normalize over time.

How tenants can respond

  • Review your lease to see the break-down of your rent. Specifically, look to see if your rent includes only a base rent or if it also includes pass-through expenses.
  • Evaluate your lease term. Look to see when your lease ends and if there are any renewal options available.
  • Asses your lease to understand what constitutes a default of the lease, and if your landlord holds a security deposit.
  • Review operating covenants and co-tenancy.
  • Explore governmental relief programs.
  • Contact your landlord and specifically outline how your business is being impacted. Reference your revenue sheet as a resource.

As the U.S. economy faces its biggest challenge since the Great Recession, relationships between tenants and landlords have been disrupted as many are forced into having difficult conversations about lease agreements and lost revenues. Most retail leases limit a tenant’s ability to claim a rent abatement based on business interruption, and now some retail tenants are aiming to rewrite their leases to include a pandemic escape clause and other additional forms of relief. However, a health crisis is beyond the control of a property owner, and not all solutions are one-size-fits-all. Landlords may face pressures to renegotiate as many tenants have made it clear they are not paying May rent. For more personalized input, and additional guidance during this time, please contact a Matthews™ specialized agent.


Matthews™ is committed to keeping the commercial real estate community informed and continuing to offer our services during these market changes. With updates and challenges released daily, for more insights on COVID-19 and CRE, visit our dedicated coronavirus website.

The Centers for Disease Control and Prevention is offering information and updates on the novel coronavirus (COVID-19) outbreak, the World Health Organization is tracking the number and location of confirmed cases of the virus and Building Owners and Managers Association International has provided the following emergency preparedness guidelines for commercial and residential property managers and landlords.




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