For the typical small business, rent is an enormous expense, second only to payroll — and there’s no blueprint for how small-business owners should deal with their landlords during an economy-toppling pandemic, according to an op-ed in The New York Times. Here’s one option: Ignore your landlord and plan on resuming rent payments when sales hopefully improve, and try to not get evicted in the meantime. Another option? Stay current on rent and pray that the economy recovers before you run out of cash. Either way, small businesses are on the hook for making rent payments in full, even if the value of commercial space they lease greatly decreases. Entrepreneurs in hard-hit areas are at risk of losing not only their businesses but also their homes and savings. Large businesses benefit enormously from the flexibility afforded to them by bankruptcy law, but the Bankruptcy Code is not as friendly to small businesses. Chapter 11 was recently amended so that small businesses can stay alive even if their creditors aren’t paid in full — but these changes didn’t apply to landlords. This means a small business can’t remain in the same commercial space unless it pays everything owed under the lease, including all back rent. If owners are in deep enough trouble to file for bankruptcy, there’s a decent chance they don’t have the funds to pay this rent in full. One possible solution is for Congress to temporarily change bankruptcy law so that small businesses can be allowed to pay their landlords more reasonable amounts until the pandemic is behind us.
