COVID-19: Tenant Retention in a Recession? Some Options

Some good questions were asked yesterday following a FRPO webinar. The first was about whether there were RTA restrictions to offering discounts to tenants and the second was about offering lease extensions to tenants in exchange for a repayment plan or a reduction in rent. Both of these tools can be used to mitigate expected revenue loss from tenant vacancies, particularly where tenants are month to month or their fixed lease terms are about to expire. For tenants whose income is drastically reduced, there is a good chance they will terminate their tenancies and opt for a range of alternative housing options to reduce expense. These hard choices can mean substantial vacancy losses for landlords. So what are some options?

Discounts: The RTA has rules about what kind of discounts can be offered and for what amounts. The rule which can be used to give tenants a break on the monthly rent is the discount rule which permits up to 8 months of monthly discounts, provided the total amount of the discount does not exceed 1 months’ rent. So if the monthly rent is $1600, the monthly discount could be $200 for the next 8 months or up to $266 for 6 months. If you have Notices of Rent Increase (NORIs) which come due during the discount period, you can issue them but “waive collection” of the increase, thereby preserving your anniversary date while preserving the “lawful rent”. If the discount is enough to satisfy the tenant’s ability to pay and stay, then combining it with a lease extension gives some protection to landlords concerned about vacancies and tenant retention during this pandemic.

Lease Extensions: These are easy to implement. Just take the tenant’s current lease (even if it is the original lease from several years ago which has since been converted to “month to month” for the past several years) and change the termination date and initial it. Another option is to just enter into a document called “Lease Extension” where the landlord and tenant agree to extend the tenant’s current month to month tenancy for a fixed term of [6?], [8] months. If the tenant is currently in a fixed term lease, just agree with the tenant to extend the termination date to the new termination date, insert the date in the lease and initial.

The lease extension could be used in tandem with simple rent arrears repayment agreements, where the recovery of arrears is extended over several months but the tenancy may be terminated in less time. If the tenant is a monthly tenant and the rent arrears repayment agreement contemplates a four or six month repayment period, then it would be prudent to extend the lease for at least four or six months so that you have an assurance that the tenant will not vacate during the repayment period.

By combining the rental discount with the lease extension, you may have a solution to avoiding tenant vacancies in circumstances where tenants are vacating because of loss of income. The options above comply with the RTA and amount to “short term pain” for potentially long term gain.

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