“Blend and Extend” Leases Can Save the Property Industry
April 5, 2020 | Franco Faraudo | Propmodo.com
By now every commercial landlord in the country has likely had an uncomfortable conversation with at least one of their tenants about rent that was due on the first. Businesses around the country are asking for payment terms for this month’s lease payment, some like The Cheesecake Factory have even made public statements about their inability to pay. The company’s CEO David Overton explained, “Please understand that we do not take this action or make this decision lightly, and while we hope to resume our rent payments as soon as reasonably possible, we simply cannot predict the extent or the duration of the current crisis.”
One study reported that 30-percent of small businesses haven’t paid their rent and another 20 percent have only made a partial payment. Many were hopeful that a small business loan program set up in the CARES act would help the situation but it has already experienced some delays. Although most landlords want to help tenants that are struggling, if rent concessions are given en masse, it could create a cash shortfall that could devalue buildings and trigger widespread defaults.
So, in order to keep tenants who can pay from breaking their leases and to help preserve property value tenants and landlords have agreed to a change in lease terms called “blend and extend.” This technique waives a period of rent and then amortizes it out over the life of the lease. In many instances, in order for the payback period to be more manageable, leases will also be extended past their original expiration date.
