Answers to the Five Most Frequently Asked Questions After a Restaurant has Closed
Closing public places, including restaurants, is one of the first tools in the kit for stopping the spread of the pandemic. If you’ve had to close your restaurant, you will need to make plans for your inventory and your employees. If you’ve done that, then you are probably hunkered down at home and thinking - now what? These are my answers to the top five questions being asked by operators after they’ve closed their units:
Question #1: Should I ask for rent relief? Yes, definitely. And do it now. There is no reason to wait until the rent is due, or until you get a phone call or a default letter. Everyone knows these are desperate times and the landlords are well aware that these requests will be coming in. Be pro-active, get in line, ask now.
Question #2: What should I ask for? Ask for a full abatement of all base rent and additional rent for at least one month. Some of my clients are asking for two- or three-month abatements. Since this pandemic is fast moving and unpredictable, nobody knows how long things will need to stay closed, so my personal recommendation is to simply ask for one month and acknowledge that you may have to ask for more. If you ask for more than one month now, some landlords will balk, saying that you might be able to open again in a month. My motto would be one month at a time.
Question #3: Will I have to give up anything in return for an abatement? Maybe. The easiest solution is to offer to add all abated rent as additional term at the end of the lease. So, if you get a one-month abatement now, add one month to the back of the lease. You could also offer to repay the entire abated amount spread out over the balance of the lease. Either way the landlord gets to keep the “value” of the deal, and you get a cash break now when you need it.
Question #4: What if I know that I can never afford to re-open again? Be realistic about this. If your restaurant was teetering on break-even, or losing money, it may not be worth trying to hang in until you can open again. You may be better off trying to negotiate an early lease termination. This is always a difficult process and it will be even more challenging now when it is unlikely that the landlords will be able to re-lease your premises. You may want to try to ride this out for a few months in hopes that you can negotiate a termination in a calmer environment. Unfortunately, not everybody has this luxury.
Question #5: Do I need to engage a professional? This is a personal decision. Many operators are very comfortable picking up the telephone and calling their landlords, and landlords, for the most part, will appreciate the call. On the other hand, sometimes it is helpful to have a third-party with experience help you navigate the process. In either event, I recommend that you approach the conversation with courage and courtesy. Property owners are running scared too and we’re all in this together.
Stephen Cohen is a former general counsel and senior vice president for a national restaurant chain. He now represents small and mid-sized restaurant, retail and real state businesses. For more information, go to http://www.stephencohenlaw.com.