Compromise in rental market imperative

SINCE the outbreak of Covid-19 and the commencement of a national lockdown to contain its spread, some of Namibia’s largest landlords have taken a pounding over the last two months with even our largest retailers in shopping malls such as Grove Mall seeking rental relief.

While this serves as a cautionary tale, smaller property owners and tenants can take action now to ride out the bumpy and uncertain months ahead.

As the reality of job losses begins to take its toll, many tenants will face the reality of not being able to pay rent. Landlords, meanwhile, will be looking hard at their cash flow projections and wondering how they will meet repayments to banks and other lenders. Based on what we are seeing in the markets now, compromise from both landlords and tenants needs to be the ‘new normal’, at least for now.

Landlords should be thinking about how they can garner as much goodwill as possible during this time. A good working relationship between owner and tenant has real value, especially when times are tough.

The most often referenced assistance has been payment holidays. Most landlords out there are opting to take this route if a tenant asks for assistance. Property owners are then capitalising the payment holiday (usually around three months-worth) into the lease. If you follow this route it’s best to include addendums into the lease, laying out the details of the agreement. This could be an extension on the lease period, or a payback period to catch up on the skipped payments.

Some property owners are passing on the savings they have seen as a result of the interest rate cuts. While it’s not a huge amount, even this small saving will be appreciated by tenants and could serve the landlord well in future negotiations and dealings with their tenants.

One way of giving tenants a break is to allow them to access their deposit money. If they can’t pay rent for a couple of months, let them take the break, with the understanding that they will then forfeit that money from their deposit when they vacate the premises. This agreement should also be recorded in an addendum on the lease contract to cover both parties.

Both commercial and private tenants may feel completely at the mercy of this sudden and vicious downturn economy. However, if they proceed with caution, there are certainly some steps they could take to protect their future.

Despite the immediate pressures, commercial tenants must take a long-term view on how they behave during the next few months. Business owners should know that how they act now will impact how they are treated by lenders in future. Delinquent clients who refuse to take calls or communicate with lenders will be viewed very unfavourably in future.

As laid out above, there are a number of ways that tenants can access relief from their landlords. It’s important, however, to know what the impact of each option will be. Simply jumping at a payment holiday, for instance, may come with some very unattractive long-term consequences.

Tenants should not just assume that they will be granted payment breaks. They should have all the necessary documentation at hand when going to their landlord. For those running a small business, we recommend you produce your management accounts, show landlords your bank statement and lay out your reasons for requesting a payment break. It also may be worth doing a credit check on yourself to show your credit history of good payment behaviour.

At the end of the day, the overriding message in this situation for both tenants and landlords is to behave responsibly.