As the economy continues to pick up steam overall, there are still plenty of weak spots. But it's getting harder and harder to make the case for help from landlords or franchisors.
Attorneys who work with leases and landlords all day say there's not exactly the helping hand that landlords were extending as COVID-19 raged last year.
"There is an almost direct correlation between the increase in vaccination rates, decrease in COVID cases and the willingness of landlords to accommodate rent relief through workouts," said Eric Greenberg, a partner at the law firm Seyfarth who focuses on real estate.
A year ago at this point, there was a lot of relief: rent abatement, deferment and the rare "don't worry about rent this month." Now, franchise operators need to prove some unique and specific factors to get that kind of help. For instance, operators in Florida are going to have a tougher time getting leeway than those in New York, where the market still faces limiting COVID-19 restrictions. Operators in a strip center or with a freestanding location are less likely than mall-based operators to get help.
"In other words, there must be a very compelling reason for a workout now," said Greenberg. "The overall commercial market is picking up again and we are now seeing competition for space."
That's showing up in new leases, too. Daniel Lowenstern, a lawyer with Paris Ackerman who prepares leases, said it's tough to get really favorable language in a lease at this point.
"Maybe six months ago we were seeing and getting more often remedies around if there is another shutdown," said Lowenstern. "But I think people are realizing that people have no appetite for future shutdowns."
Without the specter of another wave of COVID-19 shutdowns hovering over the board room, specific language around such shutdowns is getting nixed from leases by landlords and their attorneys. Across the table, without such shutdowns, lawyers are not eager to fight for such clauses if it means giving up other, more-impactful terms such as longer periods of free rent or buildout periods.
There's less help around royalty relief, too. David Paris, partner at Paris Ackerman, said he had one client that got relief during the pandemic in the form of royalty abatement.
"The franchisor abated royalties for three months out of the gate. Now, they're coming back and May was their first profitable month, and they went to the franchisor and said we need more abatement. The franchisor came back with deferment," said Paris.
He said it's the same with landlords—they need to pay their mortgage and they can see the lines and the full parking lots as consumers get out there with pent-up demand.
Michelle Prager, another lawyer at Paris Ackerman, said any of those operators who are still struggling but banked their COVID-era rescue loans should start spending them if the rainy days persist.
"Whether that's PPP or EIDL money, start using it. A lot of people banked that and they think, 'I'll use that for a renovation but they need to start using it," said Prager, in reference to Paycheck Protection Program and Economic Injury Disaster Loans.
Greenberg said for landlords especially, COVID is becoming an issue of the past.
"Today, retailers and restaurants are open and doing brisk business; and they are looking to grow aggressively," said Greenberg. "Even though there are certainly plenty of businesses still feeling a very real impact to the bottom line from COVID, landlords are starting to see COVID as an object in the rearview mirror."