What are the best practices for negotiating rent abatement in the wake of a natural disaster?

Reviewing your lease is crucial in understanding your rent obligations during a natural disaster. Look for clauses like force majeure, which may excuse rent payment if the disaster hinders property use. A casualty clause could allow lease termination or rent reduction if property damage occurs. Business interruption insurance clauses might provide coverage for operational disruptions. Be mindful of any limitations, exclusions, or conditions within these clauses. Additionally, seek legal advice for thorough understanding and protection.

First what does your lease say? Always consult your legal counsel. When did the loss occur as it relates to your lease expiration? How bad is it. Check the insurance clauses & your own policies. Some landlords might be willing to renegotiate a lease but be prepared to give somethings back. It's all also subject to your market. Might this be an opportunity to move to a better location? Your seasoned CRE broker will be able to handle renegotiations & advise you based on real market info. It also depends on who your landlord is. Their situations can change as well. Is your landlord a pension fund & your property is part of a huge portfolio? Each property type, each market, each situation and each owner will approach the situation differently.

Decide what course of action you're asking the Landlord for. A rent decrease? A break in the Lease? Remediation of after effects like flood damage or mold? If you approach them early and with a detailed plan, you're more likely to get some or all of what you want. You need to review your lease and your insurance policy first though because those may limit or expand your options.

In the first instance always go back to the lease and check your insurances. If required and you are not confident to negotiate get a professional who is proficient in lease advisory services within your area.

I'd argue that it's best to perform a physical assessment of the damage and then read and understand your insurance policy and speak to your insurance adjustor before reviewing your lease. I'd get clear on what is covered by each insurer and what is not. I then would look at and understand what portions of the building are owned/operated/maintained by the LL versus the tenant that was damaged and how repairs are supposed to be handled.

Es muy importante contemplar cláusulas que protejan al propietario, sobre todo después de lo que se vivió en la pandemia, en la cual causas ajenas a las partes cambiaron por completo el panorama.

Assessing your situation involves gauging the extent of property damage, disruption duration, revenue impact, and alternative location availability. Gather supporting evidence like photos, invoices, and financial statements. Be realistic and flexible in requesting rent abatement, considering the balance between your needs and landlord cooperation. Additionally, explore legal rights and obligations regarding rent adjustments.

While you are assessing the situation, it's important that you understand what portions of the building are covered by each insurer and who (LL or Tenant) is responsible for repairs if damages to specific items are to occur. If a third-party operator is involved, I would review and understand their responsibility. I would also read agreements/contracts with co-investors (LP's) and debt providers.

Tenants need to be aware that the landlord is banking on a fixed return. They don’t share (typically) in good times, so there is an inclination to question why they need to subsidise the bad? Having said that, there are ways of reaching a win win solution that might include a rent deferral (til the times are good), a rent abatement by way of side deed (that potentially avoids breaching banking covenants), lease extensions (because the owner values long term certainty), etc Tenants shouldn’t go into à negotiation with a sense of entitlement - the transaction was entered between willing parties. If the deal needs to change because of changed circumstances, the tenant also needs to recognise that and seek a mutually satisfactory solution

Before doing this, I would understand what portions of the building are owned/maintained and insured by the landlord versus the tenant. I would speak to my insurer(s), my lawyer(s), to my investment partners, and communicate with the lawyer(s) of my investment partners to determine a game plan on what to communicate, how, and why. I would gain access to the latest set of drawings and have someone convey data relating to what was damaged. I'd organize a time for the landlord's insurance agent to come to view the property and provide their assessment. I'd make sure that the landlord and I (the tenant) are looking at the same plans.

En mi experiencia cuando un inquilino ha necesitado pagar menos de alquiler era porque realmente su negocio no tenía los beneficios esperados, en ese caso negociar los términos siempre es duro, porque se genera un desequilibrio de poderes. Cuando un inquilino me pedía una rebaja en el precio, negociaba el incentivo de que se quedase más tiempo, y establecíamos un plan de ajuste en el precio, para que con el paso de los años el precio volviese a ser el pactado en un principio. Además siempre se pueden negociar quien asume algunas cargas fiscales o quien asume las mejoras. Prefiero un inquilino de fiar que ha pagado bien durante años, que un inmueble vacío.

Be prepared to answer questions relating to what is covered under your existing policy for tenant and landlord-owned/maintained damaged portions of the building. It is unlikely that a landlord will provide concessions if the existing policy is required to cover rent/lease payments during repairs. It's going to be very important to understand what portions of the building are built to code and which ones aren't, as this will determine what is covered by insurance and how long it will take to permit the repairs.

It will be important for any co-investment partners and any debt providers to be aware of these terms. It is important to have lots of communication with your insurance adjustor before negotiating these terms, and that you have a well-defined repair/re-construction process in place. The repair/re-construction schedule needs to properly account for permitting delays, supply chain issues for parts/materials, and qualified staffing issues, especially in areas where lots of properties were damaged at the same time. The number of qualified disaster recovery professionals (consultants, general contractors) is limited.

Cualquier acuerdo, o modificación de un acuerdo anterior, debe quedar por escrito y además bien especificado todo. En mi caso los contratos de alquiler a veces asustan a los inquilinos, por su longitud, pero cuando todo está muy bien explicado siempre es beneficioso para todas las partes. Tengo clientes que dependen de ayudas del estado, y jamás han llamado para ampliar datos o información, porque ya estaba todo contemplado en el propio contrato original. Es fundamental dejar todo bien redactado siempre, que todas las partes implicadas en el contrato lo lean con atención, y que lo entiendan antes de firmar.

It seems to me that the answer depends on what the situation is. If the question is implying that the property is unusable due to damage, most commercial leases I have seen take that into account. Normally, there is a predetermined amount of time for the landlord to cure the problem. If the landlord cannot complete those repairs within that time frame, the tenant is released from the lease.

The key thing is that your lease rules everything, and you need to find some time of win-win with your property owner if you want to divest from the lease. While you might be affected by the disaster, if you are a landlord. Comming from a place of understanding goes much further than demanding a change.

During a emergency is never the best time to make important decisions. Planning ahead is vital. If the property is habitable the renter is required to pay rent. Also a landlord cannot use security deposits to cover natural disaster expenses. Having triple Net agreement is one option to help property owners defray natural disasters costs. In exchange for reduced rent Triple Net is makes the tenant is responsible for property’s insurance, taxes and maintenance costs.