At the Sierra Crest Business Law Group, we have laid out what happens when you have a contract to perform or are receiving performance under and, a worldwide pandemic or state of emergency like the coronavirus hits.
In a previous video, we reviewed some legal doctrines that come into play and now I want to talk about what you should do in the real world if you find your business in this situation.
I’ll give you two things that you should not do and then I’ll give you a suggestion of one thing you can do when you run into an issue like this.
Don’t Avoid COVID-19 Related Financial Discussions
First, something you should not do, especially if you owe money and you’re having trouble paying because of coronavirus business slowdowns. Don’t ignore, evade, or run away from the problem. We’ve collected a lot of money for business owners and lenders over the years and the one thing that stands out the most is, people who don’t or won’t talk with the person or organization that they owe money to. Trying to run away from the problem or ignoring the problem leads to a lawsuit. It can be a very unpleasant process. Don’t ignore the problem!
Don’t Dictate Your COVID-19 Financial Terms
Second, don’t start dictating your terms to the person you owe money to. Don’t tell them what you will and will not do because it comes off in a bad way. Confronting behavior and language can put the other party off a path of working with you. Don’t lecture them and don’t run and hide.
Look For A COVID-19 Related Agreement Compromise
One thing that you can do usually with success is to talk to the person that is owed money and explain the situation. The idea is to work towards an amendment to the agreement that will be satisfactory to both sides. Here is one possible example.
Maybe you have leased a building you use as a restaurant. COVID-19 has shut down your restaurant for 30 plus days. Your revenue during that time is either zero or it’s limited to what you can sell through takeout orders and delivery. You have a real-deal situation, you know it, your landlord knows it, and your landlord’s lender knows it. One approach is to contact the landlord and explain what the situation is and how much it has affected your business. You can reassure the landlord of your intent to fulfill the lease and that you are here for the long term. You could request some abatement or suspension of rent for a period, maybe 30, 60, or 90 days. After the agreed-upon timeframe, you can talk about how soon you will be able to repay and catch up. You should also discuss if there will be interest involved. Maybe the landlord will just give up some of the money owed. You are reaching out to see what arrangements can be made.
You have to realize that the landlord is also talking to their lender. If your landlord is favorable toward an agreement, they may discuss it with their lender. They may explain that they have good tenants who have been leasing for several years and were shut down by COVID-19. Their tenants are not going to be able to pay the full rent and so we worked out an agreement and here’s how I’m going to make it right with you, the lender.
These conversations are happening on multiple levels, which is why you want to get out in front of it and communicate with your landlord.
Once you come to terms, they should be written down. It’s probably a good time if not sooner, to consult with an attorney. A good Reno business attorney can help you get an agreement down on paper in a way that matches the verbal agreement. Remember, you want to get it done in writing! Hopefully, you can then shake hands and then do what you said you would do.
If you have questions about amending a lease or modifying a lease, We would be happy to talk to you.
We look forward to hearing from you.