• Ron Gallen

Galleries and Stores: Do I Pay the Rent?

Updated: Apr 30, 2020

It didn't take long to call the question. Did we think it would? Do I pay rent? How will I do that? At home, 43% of renters nationwide hadn't paid their April rent by April 15th. We're two days from May and it's still more than 30% who haven't paid April. What's May gonna look like? Already renter's strikes are being organized--ten thousand have signed on for a demonstration this Friday in New York. Can a wildfire spread of rent strikes like that around the country be far behind? The director of Housing Justice For All in New York has called for a four month statewide cancellation of rent, or for the duration of the crisis. This wasn't really hard to predict:

Yes, the expanded unemployment benefits, including for self-employed, and the $1200 stimulus check are welcome relief. But that's not going to cover it for most people. And which would you do if faced with the choice: keep enough money for food and medicine, or pay the rent? The government should clearly step in to underwrite the solution. They haven't, and they probably won't. So the coming melee of eviction attempts, housing court overwhelm, and general chaos in the housing market, could be intervened upon. As it stands, it will all have to be sorted out in a chaotic, grueling, and extended process.

But what about the rent owed at galleries and stores? It is a little different, since the prevailing laws for commercial leases are different than residential. There's no tenant's rights legislation for a commercial lease. But some kind of analog to the residential rent situation is upon us. It is true, there is the PPP (Payroll Protection Plan), forgivable loans for small businesses. But those only allow you to pay rent with up to 25% of the proceeds (75% must go to paying salaries). Two problems:

1) if you have enough employees that your loan can be big enough to include your rent, you're likely able to make it through and, 2) if you take a PPP loan as a business owner, you can't have unemployment for yourself at the same time.

Yes, I guess there are a small percentage of galleries and stores who are cash rich enough to weather the storm. That's good, we need at least the infrastructure at the top to continue and cohere after this. But most galleries and stores don't have anything like those kinds of reserves. A stark recent estimate by a Los Angeles gallerist was that 60% of local galleries would likely close due to the quarantine. Every indication is that owners are already up against it.

So the question is here: do I use what little reserves I have to pay the rent? Or do I keep it for me and my family to stay safe until this thing is over? Not the choice anyone would want, especially when you can't know how the lease and the business will ultimately resolve once all this is over. But there it is.

I don't know if you should pay the rent. What I do know is the advice I give people over the years whose backs are up against the wall with whatever financial situation they've found themselves in. That is, if paying that bill or that creditor puts your well-being at risk, it's probably not such a good idea to pay it. Probably better to explain your situation, ask for help, then offer to pay the amount you reasonably can. Even if that amount is zero.

The problem is what will happen if you default and that either means you will have to pay the back rent, not be allowed to continue in your space, and/or the landlord sues? None of that is knowable at this point. What we do know is that it will be a new world. Ask a lawyer how this kind of case generally works out and they will cite precedents that will be a joke by the time all this hits the courts. We don't know, but my suspicion is landlords will have to accept that the landscape has so changed that pushing all their tenants to court won't make a whole lot of sense.They will, by self-interest, become realistic. Otherwise, who will rent all those empty storefronts? Judges will be forcing people to settle. I mean forcing. My other suspicion is that judges, even barring settling, will begin deciding these cases in a way that won't burn down the system.

So, I think you pay what rent you reasonably can. Ask for a moratorium. Better yet ask for forgiveness of the rent during the crisis. If you can't pay, you can't pay. Yes, you should take every possible step to inform your landlord, explain the situation, offer what you reasonably can pay, and keep them posted. But, in the end, you can only pay what you can pay. What the consequences will be are not predictable by referring to your lease. The whole landscape of tenant/landlord relations is up for grabs. And getting out in front of it by clear communication of your situation and sticking with the limits of what you can reasonably do, is probably the best way to proceed.

My personal point-of-view is you can't, at this point, let the threat of a lawsuit be the deciding factor in whether to pay the rent or not. Not if paying the rent will blow up your world. I'm not even sure the specter of not being allowed to reopen your gallery or store should be the deciding factor, if you simply can't pay. Yes, you do everything you possibly can to protect yourself and your business.

You just don't pay the rent if it will burn down your house.

#financialwellness #financialsobriety #money #debt #covidcrisis #budgeting #familyfinances #spendingplan

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