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Protecting your small business during a recession

| Aug 11, 2020 | Commercial Real Estate

New York is currently home to 240,000 unique small business. Yet, the current public health crisis and related recession have put around one-third of these at risk of permanent closure. Many more could suffer financial setbacks due to high rents and falling foot traffic.

Certain industries have experienced greater economic challenges than others. In June 2020, over 80% of bars and restaurants in the city did not make their full rent payment. Many business owners have asked their landlords for temporary rent relief. Some have received it, but these breaks are usually short-term.

As a small business owner, you may fear that you have no way to protect your operation if you cannot pay your monthly rent right now. Yet, you may see a way toward profitability as the city and state reopen. New York has currently extended its moratorium on commercial evictions until August 20, 2020. Yet, many businesses are terminating – or not renewing – their leases due to rent demands or breakdowns in negotiation.

To protect your business, you will want to consider the relief available to you. Before doing anything else, you will want to talk with your landlord. Some landlords may refuse to work out an agreement about paying rent. Yet, yours may agree to a temporary reduction in your rent or the renegotiation of your lease. They may also be willing to work out a payment plan for any back rent owed.

You will also want to review the terms of your lease as well, whether your landlord is willing to negotiate or not. Some commercial leases contain force majeure clauses. This clause allows for temporary non-performance of the lease’s terms in the event of unforeseen disaster. Yet, the language of these clauses is often narrow, and non-performance may not extend to matters of rent payment.

Your lease may include casualty and condemnation clauses as well. If your lease has a narrow casualty clause, it may apply only to the physical destruction of your business. If it is broad, the clause may be applicable in cases where you cannot use or access your storefront as well. The condemnation clause may offer you greater protection during the current crisis, since it could apply to the state and city’s closure of non-essential businesses.

Small business owners do not need to tread through these unprecedented times alone. If you need to protect your business, an attorney can help you review your options for doing so.

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