Business rent relief mired in uncertainty The Chandler Arizonan

Business rent relief mired in uncertainty

Business rent relief mired in uncertainty
City News
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By Paul Maryniak, Arizonan Executive Editor and
Howard Fischer,
Capitol Media Services

Saying some landlords are weighing evictions, Gov. Doug Ducey last week ordered judges around the state to immediately suspend such legal actions against commercial tenants affected by the pandemic.

But a major Valley strip mall owner and others fear that may not offer much of a lifeline to many struggling small businesses.

Chandler Chamber CEO/President Terri Kimbel says that while Ducey’s order “is another tool in the toolbox” for businesses to use as they struggle to survive, it’s not a panacea.

Noting that at least some landlords themselves also are up against the wall financially, she is urging Chandler businesses to open a dialogue now rather than later with their landlords.

“There are two sides of this,” Kimbel said, explaining that with landlords, “sometimes their hands are tied with their bank or venture capital.”

Gilbert Chamber President CEO/President Kathy Tilque noted that Ducey’s order “does not dictate any relief or removal of contractual obligations.”

“The amount owed to the landlord will still be due at some time in the future depending on the agreed upon plan. Discussing the abatement of penalty fees with the landlord is a great place to start in negotiations,” Tilque said.

Michael Pollack – who owns strip malls in Gilbert, across the county and in three other states – agrees.

He said the federal government must overcome the sluggish delivery of relief funds and get money into the hands of strapped business owners fast.

“What most people don’t realize is that landlords have loans,” Pollack said. “They don’t understand what the terms of those loans really mean.”

Noting many of those loans forbid lease changes without the lender’s permission,” Pollack explained, “If you do it without the consent of the lender, then you can be in default of your loan and the remedies available for the lenders could be used.”

Those remedies include a nullification of the loan.

“Even if a landlord could afford a adaptations to their leases, unfortunately with those loan documents out there, it’s not easy at all,” he said.

Worse, he said, many loans end up sold to investment companies where “you learn real fast, there’s nobody to talk to.”

Ducey’s order says commercial landlords must consider deferring rent payments for those who cannot pay the bill due to financial hardship created by COVID-19.

The order also encourages landlords to work with tenants to waive late fees, penalties and interest due to late payments as well as develop repayment plans.

But the hammer is the governor’s directive to the courts that “a commercial eviction action including lock out, notice to vacate or any other attempt to inhibit the operations of a business shall be temporarily suspended for tenants unable to pay rent due to financial hardship caused by the COVID-19 pandemic.’’

The only exception in Ducey’s order is in cases where a judge determines that staying any eviction action is “contrary to the interest of justice.’’ His order does not spell out what that includes.

Ducey’s order, which covers businesses up to 500 employees, is effective through the end of May.

His directive comes nearly two weeks after a similar executive order dealing with residential rentals.

But in the residential order, Ducey barred police officers and constables from carrying out eviction orders under certain triggers related directly or indirectly to COVID-19.

The order for business-landlord situations only directs judges on what they may and may not do.

Aaron Nash, spokesman for the Arizona Supreme Court, said there is no concern on the part of the justices that Ducey has tread into their jurisdiction since judges can still determine what is in the “interest of justice.’’

Even so, Pollack and others warn that businesses can’t assume Ducey’s order gives them much breathing room with their landlords – at least automatically.

“It’s not about forgiving rent,” Kimbel said.

Kimbel said that while some of the federal relief programs can help businesses with rent, a recent Chandler Chamber survey showed nearly a quarter of the respondents are frustrated by the process of getting aid.

“We’re hearing all kinds of things and people are really getting frustrated,” she said.

The East Valley Chambers of Commerce said a survey last week of more than 300 businesses in Scottsdale, Mesa, Tempe, Queen Creek and Gilbert showed 31 percent of respondents are seeking rent or mortgage relief, 46 percent are applying for Small Business Administration disaster loans and 47 percent for the Paycheck Protection Program loans.

“I do think eviction is a concern for many of our smaller businesses, but not sure that it’s a reality yet,” said Mesa Chamber CEO Sally Harrison. “In reading through the executive order, it looks like more of a preventative measure than a responsive measure.”

The East Valley chamber group’s survey did not indicate how successful businesses have been getting money.

But Bloomberg News Service last week reported that 790 disaster-relief loans, for a total of $357 million, were issued as of April 4 and that most of them went to California.

“A handful of smaller states, including Connecticut and Maine, divvied up most of the rest,” the news service reported. Texas, the second-most populous state, got just six loans worth less than $1 million dollars in all; at least a dozen states got nothing at all.

While Bloomberg did not indicate if Arizona was among that last group, Pollack would not be surprised.

He said that 70 percent of his approximate 1,000 tenants have sought federal relief and that “not one single tenant” has even heard a response.

Pollack even has hired a consultant with 24 years of experience dealing with the SBA to help his tenants navigate the bureaucratic channels involved in getting aid.

“The federal government needs to figure out a way to get this $2 trillion or whatever it is this that’s earmarked for small businesses into the hands of those people,” he said. “They need to get it done and after they get it done, then hopefully the quicker we’ll be able to stop the pain of what’s going on in our country.”

Ducey’s order on business-tenants declares that a tenant that cannot pay must first notify the landlord or property owner in writing and furnish “any available supporting documentation of their inability to pay rent’’ due to a temporary financial situation.

Tenants also have to acknowledge that the lease contract remains in effect.

Kimbel said there are countless situations where a landlord likely will demand additional financial records from a tenant.

She said a leasing company told her of a business-tenant who got the first five months of occupancy free in return for signing a five-year lease and that the tenant already sought a delay in making the first month’s payment.

“So, from the landlord’s standpoint, he’s taking a look at it and saying, ‘Okay. I just gave you five months free rent. Did you put some savings?’” Kimbel said.

“When you got months of not paying a bill, the landlord is going to wonder what you did with that money,” she said. “There are really two sides to this because landlords are businesses too.”

Ducey’s order on business evictions spells out that tenants getting any form of public assistance must apply “a portion’’ to any current or past-due rents.

That includes a portion of the $2 trillion federal relief package which allows businesses with fewer than 500 employees to get SBA loans.

But the order spells out that landlords cannot require any specific percentage of that outside aid.

Farrell Quinlan, executive director of the Arizona Building Owners and Managers Association, said the governor has been working with the commercial real estate industry.

“There’s a lot of forbearance going on out there,’’ Quinlan said. “And there’s a lot of working with our tenants.’’

Echoing Pollack’s explanation, Quinlan said the order does not mention the landlords’ financial obligations.

“Are the banks and the lenders that we have to answer to for our bills, are they going to show a similar forbearance with our obligations?’’ Quinlan asked.

The governor says lenders “shall consider’’ deferred payments, but Kimbel and Tilque both stressed that business owners simply can’t hide from their landlord.

“It’s about that relationship that they build,” she said. “You’ve got to be able to pick up that phone and just have that frank conversation and work something out.”

Pollack said he doesn’t fault Ducey, who “is doing an incredible job.”

He likened the state of the federal apparatus for distributing relief to jello.

“It’s not hard yet,” he said. “There’s a lot of unanswered questions about the program and there’s a lot of the blanks that haven’t been filled in yet. I sincerely believe once the program gets implemented and can get out to all the small businesses that truly need it, then I believe that we’ll see some progress.”

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