All over the world, what we’re hearing about are businesses closing shop because they are unable to pay their rents and dues. We hear about large companies failing to make ends meet. As a result, they have to move their business operations somewhere. Many had to downsize their workforce. Employees are now working from home instead of in a traditional office.
But while the world is highlighting how some businesses are literally thrown out of their offices, they are forgetting about the landlords. They have bills to pay, too. That’s why they are sometimes forced to follow the clause about the forfeiture of the lease of commercial units in the existing contractors. If the tenants cannot pay, the landlords cannot allow them to continue using the premises. They might be better finding a new tenant to pay the rent because they, too, are barely making ends meet today.
The Short-term Rent Market
This is especially true in the short-term rental market. In the past, the business model of Airbnb was enviable. After all, rentals earn more by having their spaces leased for a week or two at the most. The constant movement of tenants means they can increase their prices during the peak season and bring them down again during off-peak seasons.
But when the pandemic happened, the market dried up overnight. With many of these rental spaces shut down because of the lack of tourists in the past couple of months, landlords have to consider putting up these properties for sale. Last year, these short-term rental homes only have a 2% vacancy rate. Today, some short-term rental homes are reporting less than 30% occupancy rate.
Landlords Have Bills, Too
Landlords are paying their own bills, too. They don’t sit on the couch while waiting for the rent money to come in. They pay the mortgage, utilities, maintenance, repair, and replacement. If they have a property manager, they have to provide for the manager, too. If they are going to be lenient in their rental properties, where will they find the money to pay the mortgage?
A commercial or residential lease property is like a business, too. Landlords run them like a businessman would run a company. They have operational expenses. They pay loans, suppliers, and employees. Think of your own business. If you don’t have customers or clients, how are you going to fulfill your obligations? You are the landlords’ customers. You pay them rent, so they can fulfill their obligations to their lenders, suppliers, and employees.
Market Is Looking Up
But don’t worry if you’re in the short-term rental industry. You are doing better than the hotel industry. In the months since the coronavirus first struck the United States, business travel and tourism dried up. But now that the economy is slowly opening back again, one of the first industries to get back on its feet is the short-term rental market. There are doing better than hotels because vacationers are gravitating toward lodgings and rental homes where they can practice distancing more.
Worldwide, the hotel market experienced an average of 77% decline from March 2019 until the stretch of the pandemic. But for short-term rentals, the decline was only at 45% while occupancy in two-bedroom rentals decreased by 46%. It’s worse in the urban settings where hotel occupancy fell by 53%.
In terms of commercial leases, it seems that the market is trying to recover, too. Although the median monthly rent in commercial spaces went down, many entrepreneurs are trying to carve a niche in a volatile market. Following the analogy that striking it during a crisis will make a business more stable, many entrepreneurs are looking for a way to break into this economy.
How to Overcome Impasse
Landlords don’t want to lose their tenants, too. But if the tenants don’t pay their rent, what will the landlords do? Pay for the maintenance and upkeep of the space for free? Perhaps, what both parties need to do is find a way to overcome this impasse in their relationship. You can renegotiate the terms of the contract. Many landlords allowed their tenants to use part of their advanced payments to get by today. This could also be an option for you.
Whenever there’s a misunderstanding between the landlord and tenant, both sides should do their part in trying to come up with a solution to their problems. Revisiting the contract is one of these options. Since these are different and extraordinary times, both parties can agree to meet in the middle. Just make sure that the new terms in writing.