Navigating economic downturn as a commercial landlord

An economic downturn creates struggles for everyone – tenants and landlords alike.

Tenants face mounting financial pressures, vacancies spike as businesses downsize or close, and reliable rental income becomes increasingly unpredictable.

In this blog post, we will outline key strategies and best practices for landlords to weather the turbulence. From handling late payments to maintaining strong tenant relationships and mitigating vacancies, you’ll learn tactics for protecting your investment. We also cover guidance around lease reassignments and subleasing.

Late and slow payments

One of the more immediate (and more difficult) challenges faced during difficult economic periods is tenants struggling to make rent payments on time or in full.

It’s essential that both parties approach these situations with empathy and understanding. While late fee enforcement may seem a straightforward solution, levying penalties on tenants grappling with unforeseen hardships will likely only escalate tensions and strain relationships.

A more productive path forward requires first acknowledging the challenging circumstances tenants may be facing. An experienced property manager will engage with tenants to gather context around the reasons for late payment, determine if it is a temporary cash flow issue or an ongoing struggle, and then craft an appropriate response.

Breaking a lease

Economic downturns may force some tenants to sell their business/end their leases prematurely.

There are three possible avenues to take in the event a tenant needs to break a lease:

• Selling the business: If the tenant sells their business and the new business owner agrees to continue operating in the property the landlord gets to continue receiving rent revenue. In this case, accessing your property manager’s network of potential buyers or business brokers can ensure a swift and seamless transition.
• Reassigning a lease*: Reassigning a commercial property lease involves transferring the lease agreement from the original tenant (the assignor) to a new tenant (the assignee). It’s important to note that this process involves legal considerations, documentation, and landlord consent, which means it can sometimes take a bit of time to finalise.
• Subletting a lease*: Subletting a commercial property can mean leasing out all or a portion of a leased space to a new tenant. In this arrangement, the sublessor becomes the primary tenant and assumes responsibility for the lease with the landlord, while the subtenant occupies and utilises the subleased space.

*Landlord consent is required for both reassignments and subletting properties.

Maintaining tenant relationships

Vacant properties represent a major cost burden with no offsetting income. Carrying costs like maintenance, security, mortgage payments, and not to mention the costs of sourcing new tenants, quickly erodes profits. Keeping tenants in place and revenues flowing becomes absolutely critical during lean times.

Maintaining strong tenant relationships is key amidst market adversity. It’s important to stay proactively engaged with tenants, stay on top of maintenance responsibilities, and respond to repairs quickly.

This personalised attention provides reassurance while stabilising occupancy levels and income streams.

How Azure can help

While all the above might have taught you how to balance landlord and tenant relationships during economic downturns, it’s probably also taught you how laborious it is to be a commercial landlord during these periods.

If you don’t want to add extra stress during an already stressful period, engage with the experts at Azure.

At Azure, our team can provide invaluable support, guidance, and resources to help landlords navigate complex situations, protect your investments, and ensure the success of your commercial properties.

Contact us today to learn how our property managers can best support you.