Although essentially a global health crisis, the coronavirus pandemic has quickly spun into an economic recession. As business operations have slowed to a halt, given the stay-at-home orders, many have experienced losses to the point of carrying out mass layoffs or total closure.
While your rental business may be getting by during this economic downturn, you’ve most likely felt its ill effects. For one, some of your tenants may be asking for a rent suspension, perhaps because they have been laid off from work or they feel like they have to reserve money for more urgent needs.
In these sensitive situations, you should be able to strike a balance between exercising empathy and keeping your business afloat. To make this happen, you have to know the basics: What is a rent suspension and how does it work?
What is a rent suspension?
Given the economic impact of the coronavirus outbreak, governments around the world have introduced legislation for extending relief to renters. Here’s an overview of some versions of rent suspension:
- In the United Kingdom, the Coronavirus Act 2020 protects tenants who would miss payments from eviction lawsuits. The ban on evictions has been extended until September 2020.
- Under the CARES (Coronavirus Aid, Relief, and Economic Security) Act of the United States of America, it’s unlawful to evict a tenant for nonpayment of rent from March to July 2020.
- The rent suspension the Philippine government introduced through the Bayanihan to Heal as One Act is a deferment of payments. Billing statements that fall within the enhanced community quarantine (ECQ) period will be postponed to at least 30 days without incurring interests or penalties. Likewise, the government banned landlords from legally evicting a tenant for failure to pay during the crisis.
These policies on rent suspension that COVID-19 has influenced are mandated by law. This means compliance is a must. Not understanding the unique meaning of rent suspension in your country or locality can get you in legal trouble. Hence, make it a point to check news and updates about new policies in your area.
What should you do if renters ask for a rent suspension?
Although rent suspension is required by law, it’s not automatically granted to tenants. Renters and landlords should discuss the terms and conditions and put it in writing to avoid disputes, especially after the pandemic.
Thus, know what steps you should take when a tenant approaches you for rent relief. Below are some good pieces of advice for lessors on granting a rent suspension:
1. Communicate your needs with each other.
Sit down and discuss each of your financial situations. There’s a good reason that your renter isn’t able to keep up with their payments. They were probably laid off from work or a family member needs healthcare support. Learn the facts of their situation; so you can determine how you can help them settle their obligations.
While understanding their needs, let them know yours, as well. Be transparent about your mortgage, taxes, and maintenance, repair, and utility costs. If you’re a condo owner, you’ll continue paying for condo association fees. On top of this, you’re probably thinking of buying condo insurance for added financial protection in this time of crisis.
Explain to them that as the lessor, you have to cover these expenses amid the pandemic after certain moratoriums are lifted. With your financial situation laid out, you can hopefully come to an agreement on rent suspension terms that will be mutually beneficial for both parties.
2. Create a payment plan for post-rent suspension.
Part of your discussion with tenants is outlining the payment terms once the rent suspension period is over. It’s absolutely important to be clear about this, to prevent possible conflicts later.
The three most important aspects you should agree on are:
- Bulk. Depending on the financial situation of your renter, will they be able to afford a lump sum payment or incremental payments stretched over a period of time?
- Frequency. If they choose incremental payments, how often will they pay for their debt? Some options are fortnightly, bi-monthly, monthly, quarterly, or semi-annually.
- Mode. What will be the mode of payment for their outstanding balance? Some options include cash, check, bank deposits, or mobile banking. If you choose mobile banking, be clear which communication platform your tenant should use to show the proof of payment.
While drafting a unique payment plan for each of your renters, be 100% certain that:
a. They’re fully aware of their responsibilities; and
b. They will adhere to the agreed-upon payment schedule and the exact price to pay.
3. Come up with creative repayment plans.
Aside from rent deferrals, you can also resort to other forms of repayment. Below are some you may explore, depending on the financial standing of your tenant and your relationship with them:
- Use their rental deposit. At the beginning of their tenancy, a one-month deposit is required. You may use this money to cover for what your tenants can’t, for the time being.
- Reduce the rental fee. This is probably not the best option in a financial crisis, but if it would mean helping tenants pay normally, again, thereby rebooting the flow of money into your business, this could be a big advantage. You wouldn’t want a legal eviction and a vacant property in the middle of a pandemic, anyway.
Plus, the reduced fee wouldn’t have to be a permanent set-up. Agree on a certain period that your tenant can pay such an amount.
- Encourage sub-letting. Bring in a new tenant, to help your current renter reduce the amount of their monthly rent. And, by extension, this can help replace your lost revenue from the rent suspension. Ask your tenant to scout around for temporary roommates.
4. Keep an account of everything.
Whatever rent suspension agreement or repayment plan you arrive at with your renter, make sure to put everything down in writing. Formalize it as a legal document, including the points in the rent suspension clause, and make sure your tenant fully understands these.
It would be most ideal to conduct this in the presence of a lawyer. Have your tenant sign the contract and give them a copy for reference. Should disputes arise, refer to this piece of legal document to support your claims.
5. Refer them to government financing programs.
In extending help to your tenants, guide them towards the government's financial support programs. This can help them get their finances in order for the repayments on the rent suspension you agreed on. It may even cover other expenses such as the condo renter’s insurance, which will cover them should untoward incidents happen during the pandemic.
Below are some relief assistance initiatives your renters can benefit from:
- For those who were laid off. Your tenant can apply for the pension fund's unemployment benefit. If they're eligible, they can get half of their average monthly salary credit for a maximum of two months. Informal workers can also maximize job opportunities made available by the Department of Labor and Employment’s Tulong Pangkabuhayan sa Disadvantaged/Displaced Workers (TUPAD) program.
- For those who are on temporary leave. Your renter's employer can provide financial assistance to displaced workers through DOLE’s COVID Adjustment Measures Program (CAMP). They can receive a cash aid amounting to PhP5,000.
- For affected small business owners. Your renters can borrow up to PhP500,000 from the government, which can help jumpstart their operations again and help in their finances.
Keep in mind the guiding principles in dealing with this delicate situation: being mindful of your tenants’ rights and consideration of your business welfare.
As much as possible, aim for a friendly, accommodating atmosphere when dealing with your renters. At the end of the day, they can make or break your rental business. And how you handle this situation will be remembered beyond the pandemic.