So you are under water with your commercial lease in a big city, what to do?.
We had a very intersting conversation with a NYC friend and business owner this morning and what happened to her at her store last week!.
She has an exotic candy store and she also sells some other product there also.
She has a very small store, but in a very good foot traffic location (normally) now with the Covid-19 pandemic her foot traffic customer base is off by 90%.
She is sitting with a 2 year lease with 8 months left on the lease for 14.500 USD each month.
Her landlords is a Co-op with 10 apartments valued between 3.5-6.5 million dollars each.
Her business has been able to pay roughly half the rent for April-Sep 2020, and she is behind with almost 40.000 dollars.
Now the director of the Co-op board came into her store mid day last week, when she had some customers there and started yelling at her for being a scam artist and a con-lady, now she is 5.4 and weighs 110 lbs, and the guy that came in and started yelling at her to show her books was 6.3 and according to her weighed 240 lbs.
She panicked after he left and emailed us at Mrlifeadvise and this is what we told her to do.
Call your real estate lawyer and call your CPA.
So after calling her CPA he told her not to hand over the books.
And her real estate lawyer who helped her with the lease told her not to worry , she can not get evicted at the moment without the case going to court two to three years from now.
The New york commercial and privat leases are more than 70% under water right now meaning (people and companies are not paying anything on them at all or very little)
So her making at least half the payment is a good show of intent to pay for her stores lease.
Now the Covid-19 pandemic is a force majeure not like nothing seen before in the NYC and other bigger cities real estate market.
So her lease is signed for heavy foot traffic, and now she only has 5% left of that foot traffic.
So our advise to her was this, she will end up in court on this lease, 3 years from now anyway.
So we told her what we would do in her shoes and that would be to stop paying here lease all together and keep her store open for as long as she has the lease.
And then look for a better priced location.
And we have also told her to give out her real estate lawyers card the next time somebody from the Co-op board shows up in the store, and also call the police if she feels threaten in any way shape or form.
So the reason she should stop paying her lease is that she does not get anything close to market value for her lease, and by no fault of her own.
This is commercial real estate for you and for.
And this reason we tell most of our clients that do not get into commercial real estate unless you have a boat load of money and you are very experienced in commercial real estate or you have start out very small.
You can make a lot of money in the commercial real estate sector but you can also lose a lot of money if something big happens in the market.
So as long as you do not pay full rent cost on your commercial lease, you will most likely end up in civil count anyway, so in most of these cases it is better under these current circumstances if you can not re-negotiate your lease NOW TODAY then maybe you are better off not paying it at all!.
DISCLAIMER:
Every situation is different so you have to make this decision for your self, we can only advise on what we would do in your shoes, but you are the business owner and we are a small business consulting company, so we can only advise form our end what we would do in your shoes.
But you are in charge of your own life and the future of your own business.
Take care.
