Desperately need advice regarding my business lease.

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Topic Author
ElmoHongZito
Posts: 257
Joined: Tue Mar 27, 2018 9:17 am

Desperately need advice regarding my business lease.

Post by ElmoHongZito »

Thank you in advance for any guidance that can help me put a plan together to mitigate a very difficult situation that I am currently facing and may get worse in the near future.

Always dreamed of becoming an entrepreneur and finally jumped into the deep end of the pool. Less than 2 weeks before this pandemic surfaced in the USA I purchased what is probably the worst business you can be in during an infectious pandemic —> a banquet hall. I paid cash and did not take out any business loans. Lost my corporate day job in medical device sales due to COVID a few weeks later. The business purchase was actually an “asset acquisition” (I did not purchase the corporation) and I overpaid because I “saw the potential” at the time and never in a million years expected something like this current pandemic to occur. Even though I overpaid for it, I got it for 100k less than what the owner felt he needed to sell it for and I was confident at the time that any other existing banquet hall owner in the area with capital would have scooped it up in a heartbeat at the price I got it for based on its location, square footage, layout, parking, and being a stand alone building which is rare in our local event venue market.

I signed a 5 year lease with the owner of the property at a reasonable price per square foot but because of the size of the space we’re still talking about 16k per month. The landlord terminated the lease from the previous owner and transferred his deposit to me. I still had to contribute towards a deposit because he requires 3 months of rent as a deposit to initiate the lease.

Within 2 weeks of me purchasing the business and signing that lease, all banquet halls in the county were shut down due to COVID. Fast forward 5 months and I am still closed, no income, and with no clue of when or if I will be able to open again. During those 5 months I have remained optimistic and invested a large amount into the building since it was pretty run down and there was no way (with or without COVID) that it would sustain in business without lease improvements (floors, painting, restrooms, window treatments, lighting, among other things).

I am currently 4 months behind on rent and the landlord has not been on my case because he understands that my business has been hit the hardest. At this point we are on a “start paying me rent when things turn around” verbal agreement but that does not mean I will not owe the months I have not paid. He may pardon some of it but with nothing in writing I cannot hang my hat on that and the amount he may pardon may be just a drop in the bucket.

I am now living on my savings and continue to have my brokerage account index funds as well as IRA’s with Vanguard. My wife is a pre-k teacher and we have 2 kids so her income is helpful but its still a teachers income. Thank God we have health insurance thanks to her still being employed.

My biggest fear and what keeps me up at night —> Things not turning around any time in the foreseeable future (county allowing us to reopen) and people not regaining the confidence to attend or host large gatherings and as a result staying in my business stops making sense due primarily to rent. The second thing I fear is the landlord coming after my assets (home, bank accounts and brokerage account) due to the 5 year lease contract I signed.

Any wisdom and guidance from those of you that understand what protection I may have or how I can best prepare myself to protect my family please share your comments.

Mayor says that he will begin discussions about “reopening” once the daily positive test percentage is around 5%. Two weeks ago we were at 15.4% and its slowly come down to around 11% so although that is a good advancement, we are still far from his reopening goal and hoping that there are no more spikes in the coming days. Thanks again for reading my post.
Lee_WSP
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Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Desperately need advice regarding my business lease.

Post by Lee_WSP »

If there's no personal guarantee, walk away. Stop throwing, money into this dumpster fire, we all warned you when you were thinking of doing it.
smitcat
Posts: 6660
Joined: Mon Nov 07, 2016 10:51 am

Re: Desperately need advice regarding my business lease.

Post by smitcat »

ElmoHongZito wrote: Sun Aug 16, 2020 10:24 am Thank you in advance for any guidance that can help me put a plan together to mitigate a very difficult situation that I am currently facing and may get worse in the near future.

Always dreamed of becoming an entrepreneur and finally jumped into the deep end of the pool. Less than 2 weeks before this pandemic surfaced in the USA I purchased what is probably the worst business you can be in during an infectious pandemic —> a banquet hall. I paid cash and did not take out any business loans. Lost my corporate day job in medical device sales due to COVID a few weeks later. The business purchase was actually an “asset acquisition” (I did not purchase the corporation) and I overpaid because I “saw the potential” at the time and never in a million years expected something like this current pandemic to occur. Even though I overpaid for it, I got it for 100k less than what the owner felt he needed to sell it for and I was confident at the time that any other existing banquet hall owner in the area with capital would have scooped it up in a heartbeat at the price I got it for based on its location, square footage, layout, parking, and being a stand alone building which is rare in our local event venue market.

I signed a 5 year lease with the owner of the property at a reasonable price per square foot but because of the size of the space we’re still talking about 16k per month. The landlord terminated the lease from the previous owner and transferred his deposit to me. I still had to contribute towards a deposit because he requires 3 months of rent as a deposit to initiate the lease.

Within 2 weeks of me purchasing the business and signing that lease, all banquet halls in the county were shut down due to COVID. Fast forward 5 months and I am still closed, no income, and with no clue of when or if I will be able to open again. During those 5 months I have remained optimistic and invested a large amount into the building since it was pretty run down and there was no way (with or without COVID) that it would sustain in business without lease improvements (floors, painting, restrooms, window treatments, lighting, among other things).

I am currently 4 months behind on rent and the landlord has not been on my case because he understands that my business has been hit the hardest. At this point we are on a “start paying me rent when things turn around” verbal agreement but that does not mean I will not owe the months I have not paid. He may pardon some of it but with nothing in writing I cannot hang my hat on that and the amount he may pardon may be just a drop in the bucket.

I am now living on my savings and continue to have my brokerage account index funds as well as IRA’s with Vanguard. My wife is a pre-k teacher and we have 2 kids so her income is helpful but its still a teachers income. Thank God we have health insurance thanks to her still being employed.

My biggest fear and what keeps me up at night —> Things not turning around any time in the foreseeable future (county allowing us to reopen) and people not regaining the confidence to attend or host large gatherings and as a result staying in my business stops making sense due primarily to rent. The second thing I fear is the landlord coming after my assets (home, bank accounts and brokerage account) due to the 5 year lease contract I signed.

Any wisdom and guidance from those of you that understand what protection I may have or how I can best prepare myself to protect my family please share your comments.

Mayor says that he will begin discussions about “reopening” once the daily positive test percentage is around 5%. Two weeks ago we were at 15.4% and its slowly come down to around 11% so although that is a good advancement, we are still far from his reopening goal and hoping that there are no more spikes in the coming days. Thanks again for reading my post.
- Have you recieved any of the loans available for these business's due to Covid19?
- Have you been working at all with your local SBD office?
- Have you contatcted anyone with SCORE in your area?
- Do you have a local small business office contact in your city/county?
playtothebeat
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Location: southern california

Re: Desperately need advice regarding my business lease.

Post by playtothebeat »

Best thing you can do is talk to your attorney. Have him/her review your lease. Is there a personal guarantee? A Force Majeure clause? Does your Business Interruption insurance have a pandemic exclusion? Did you apply for PPP loan?
CascadiaSoonish
Posts: 288
Joined: Tue Feb 13, 2018 11:44 am

Re: Desperately need advice regarding my business lease.

Post by CascadiaSoonish »

Yeah, I think we'd need to know more about some of the particulars. Geographic location of business and local impact of COVID? Did you create a separate entity to house the business? Did you assume any personal liabilities/guarantees with the business or the lease? What's your exposure there? Do you have robust business interruption coverage in your insurance policies? But based on what you've shared already, doesn't sound like a good situation for you nor can I think of many good options. If the business you purchased was basically just intangibles (a lease on a space and the then-likelihood of future cashflow) I only see downsides and a cashflow black hole for the next couple years at least.
Luckywon
Posts: 1136
Joined: Tue Mar 28, 2017 10:33 am

Re: Desperately need advice regarding my business lease.

Post by Luckywon »

IMO you should part with your dream of running a banquet hall. Find a good business attorney who will help you negotiate with the landlord and advise you on options such as terminating the lease or repurposing the space. Or finding someone else who can and will take over your lease. Of course this will be at a large loss but hopefully less than your current exposure.

Edit:. Also, stop making improvements to the space. Return on investment is possibly zero and it will weaken your position with the landlord. It is in your interest for the landlord to know that you are ready to walk and investing money in the space will create the opposite impression.
Last edited by Luckywon on Sun Aug 16, 2020 11:51 am, edited 1 time in total.
hookemhorns
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Re: Desperately need advice regarding my business lease.

Post by hookemhorns »

Haven’t you posted this exact same topic three times now? The first time everybody told you not to make this deal. The second time you were given advice on how to get out of it. It doesn’t seem like you listen to anybody on here.
stoptothink
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Re: Desperately need advice regarding my business lease.

Post by stoptothink »

hookemhorns wrote: Sun Aug 16, 2020 11:39 am Haven’t you posted this exact same topic three times now? The first time everybody told you not to make this deal. The second time you were given advice on how to get out of it. It doesn’t seem like you listen to anybody on here.
The initial thread when OP was considering buying the place was a Boglehead board classic.
CascadiaSoonish
Posts: 288
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Re: Desperately need advice regarding my business lease.

Post by CascadiaSoonish »

stoptothink wrote: Sun Aug 16, 2020 11:49 am
hookemhorns wrote: Sun Aug 16, 2020 11:39 am Haven’t you posted this exact same topic three times now? The first time everybody told you not to make this deal. The second time you were given advice on how to get out of it. It doesn’t seem like you listen to anybody on here.
The initial thread when OP was considering buying the place was a Boglehead board classic.
I just looked up some of the older posts. Whoa. I'll walk back my previous post by saying OP needs to shut down the business and take the loss. Part of being a successful entrepreneur is not only taking risk, but taking the right risks, and I think OP needs to develop that discernment before their next venture.
palanzo
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Re: Desperately need advice regarding my business lease.

Post by palanzo »

I have read your previous threads. What is your 51% business partner going to do?
palanzo
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Re: Desperately need advice regarding my business lease.

Post by palanzo »

CascadiaSoonish wrote: Sun Aug 16, 2020 12:04 pm
stoptothink wrote: Sun Aug 16, 2020 11:49 am
hookemhorns wrote: Sun Aug 16, 2020 11:39 am Haven’t you posted this exact same topic three times now? The first time everybody told you not to make this deal. The second time you were given advice on how to get out of it. It doesn’t seem like you listen to anybody on here.
The initial thread when OP was considering buying the place was a Boglehead board classic.
I just looked up some of the older posts. Whoa. I'll walk back my previous post by saying OP needs to shut down the business and take the loss. Part of being a successful entrepreneur is not only taking risk, but taking the right risks, and I think OP needs to develop that discernment before their next venture.
I've also gone back over older posts and it seems the OP does not have a lot or any experience running a business and is using this forum to learn how to do so.

Do you think he should try to run the current business or shut it down? He may run out of cash soon and have no choice.
CascadiaSoonish
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Re: Desperately need advice regarding my business lease.

Post by CascadiaSoonish »

palanzo wrote: Sun Aug 16, 2020 12:08 pm Do you think he should try to run the current business or shut it down? He may run out of cash soon and have no choice.
If it's an events space in a region where COVID is not under control, there's really not a business to be run until 2021 at the earliest. Most people aren't going to even think about booking an expensive events space until there's a vaccine or immunity, and even then the events themselves probably wouldn't happen for months after people feel safer. Given that they'd need a certain volume of events to just get to break even, realistically we're talking 2022 at this point...with two years of 100% losses on the books at that point it would take years to dig out. Time to walk away.
KATNYC
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Re: Desperately need advice regarding my business lease.

Post by KATNYC »

Have your lawyer check your lease. A lot of insurance companies tightened up their language after SARS so business interruption is probably not an option. Check your force majeure clause. The only events I've seen taking place have been at venues with outdoor spaces. I just saw photos from an outdoor wedding of maybe 75 people with an indoor buffet reception. Not sure what state you are in though or if you have outdoor options.

Digging deeper is the wrong move once you are in a hole. Do not make any renovations.
finite_difference
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Re: Desperately need advice regarding my business lease.

Post by finite_difference »

I think in a realistic scenario, your banquet hall business will not be able to open and operate at 100% until Spring 2022. Let’s say May 2022. It’s currently August 2020. So that’s about 21 months. Can you stay afloat until then?

From a cold business perspective, I definitely wouldn’t count on the best case scenario of being at 100% starting this spring (2021). That would require either a miracle cure or widely available vaccine or both. It’s possible, but I just personally wouldn’t risk financial disaster over it.

On that note, did your business buy it or did you buy it? Can’t your business go bankrupt? It seems worth taking some business courses if you purchased a business with your own personal money. In Business 101, aren’t you supposed to draw up a business plan and convince a bank to lend your business money?
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
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JonnyDVM
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Re: Desperately need advice regarding my business lease.

Post by JonnyDVM »

Not to pour salt in the wound but reading the original thread numerous posters who are well versed in small business operations and acquisitions told you to not buy this. Some going so far as to say they wouldn’t take this business for free. I would listen to them now.

There is no way I would take that kind of loss per month. Realistically the earliest banquet halls will be back to pre pandemic levels is late spring 2021. That’s the absolute earliest I could envision and I’m probably being overly optimistic. I would make a meeting with the attorney who vetted my lease and say “I need to get out of this yesterday”. Walk away. No more money down this hole. Just take the loss and move on. Hopefully you have an appropriate LLC corporate veil in place.
I’d trade it all for a little more | -C Montgomery Burns
palanzo
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Re: Desperately need advice regarding my business lease.

Post by palanzo »

CascadiaSoonish wrote: Sun Aug 16, 2020 12:14 pm
palanzo wrote: Sun Aug 16, 2020 12:08 pm Do you think he should try to run the current business or shut it down? He may run out of cash soon and have no choice.
If it's an events space in a region where COVID is not under control, there's really not a business to be run until 2021 at the earliest. Most people aren't going to even think about booking an expensive events space until there's a vaccine or immunity, and even then the events themselves probably wouldn't happen for months after people feel safer. Given that they'd need a certain volume of events to just get to break even, realistically we're talking 2022 at this point...with two years of 100% losses on the books at that point it would take years to dig out. Time to walk away.
Thank you for clarifying. I wanted to make sure it was clear to the OP what you were suggesting. Looking at earlier posts by the OP he is in Doral, FL. I agree with you about 2022 and time to walk away. He should work with his attorney to wind this up.
WJW
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Re: Desperately need advice regarding my business lease.

Post by WJW »

You got to know when to hold them and know when to fold them. In this scenario, I'd fold them.

A lot of folks warned you about this business idea, you should've listened.
mw1739
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Re: Desperately need advice regarding my business lease.

Post by mw1739 »

I think you’re going to need to be creative with potential uses. Can you rent the location out to the local government as a COVID testing center? Host smaller and properly distanced events?
Topic Author
ElmoHongZito
Posts: 257
Joined: Tue Mar 27, 2018 9:17 am

Re: Desperately need advice regarding my business lease.

Post by ElmoHongZito »

Wow! Taking allot of fire in these replies.

I’ll try to add more color and hopefully I don’t miss something that was asked.

Yes the lease contract required personal guarantees. This is not the landlords first commercial lease rodeo. He owns the entire shopping complex that has a boat loads of businesses in it.

My 51% business partner is hoping like I am that we will survive and be profitable on the other end also considering that there are competing venues that will be out of business by then. His main business which in a non-COVID world would be feeding leads to the banquet hall, is doing well. Not down vs last year but I think thats also because since people cannot do parties, they are deliberately looking for just photography and video and they are willing to allocate more money to it since that will be their only memory for their 15’s/quinces.

For the one that commented that I do not have much business experience and using the forum to seek guidance you are correct. I am not offended by your comment. At least I am open to learning unlike most people.

Have not received any relief loans or grants. PPP was not an option since we had just incorporated and also based on the way the previous business owner ran it and the timing when we bought, we have no employees.

I have been in touch with SBA and they did not know of any relief funds outside of PPP.

We do not have any business interruption insurance. My business partner had for his other businesses but apparently the way it was written excluded viral pandemic or something like that. In short, his other businesses got nothing from that policy.

I am in south florida and yes we did create a separate entity (LLC) but my understanding is that does not protect me from anything. Remember we signed personal guarantees.

I still have some hope. From about June 19 to July 4th which was smack in the middle of the pandemic I had a little run where signed about 6 or 7 contracts for events next year adding up to about 75k and its safe to say that the closing rate was high considering there was not allot people knocking on the door. It gave me a glimmer of hope that there are still people that are looking into hosting events for 2021 and beyond and if I can get them in the door, close them and put them on payment plans I can possibly create some cashflow that will help dig us out of the hole.
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JonnyDVM
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Re: Desperately need advice regarding my business lease.

Post by JonnyDVM »

mw1739 wrote: Sun Aug 16, 2020 12:59 pm I think you’re going to need to be creative with potential uses. Can you rent the location out to the local government as a COVID testing center? Host smaller and properly distanced events?
Good suggestions for OP’s landlord who owns the building. Not for OP who is going to do the sensible thing and cut and run.
I’d trade it all for a little more | -C Montgomery Burns
palanzo
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Re: Desperately need advice regarding my business lease.

Post by palanzo »

My comment was not meant to offend. I am concerned you have gone into this venture with little experience running a business. You should consider creating a cash flow spreadsheet that shows fixed outgoings and the incomings that covers 2020 and 2021 and see where you stand. Although this forum is an excellent resource I think you need face to face advice from an attorney and an experienced business manager.
CascadiaSoonish
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Re: Desperately need advice regarding my business lease.

Post by CascadiaSoonish »

In the interest of a constructive conversation -- a few additional observations, speaking as a small business owner. Financially it's almost impossible to come up with a continued operations approach that doesn't involve digging a deeper hole. We don't know the numbers but broadly speaking it sounds like bankruptcy of the LLC would at least minimize losses. That said, OP seems determined to keep going, so I'd suggest renegotiating the rent down to zero until 2021, retroactive to the beginning of the lease. Yep, zero. It's not like the landlord is going to have better options. Offer revenue sharing if that sweetens the renegotiated deal. I also like the idea of doing some broadening of the business model such as going after photography and location shoot rentals. Cut all overhead and do not put any more money into the property than is absolutely necessary for a revenue producing activity. And right now define "go/no go" metrics for 12/31/20 and 7/1/21 with the business partner so that there is an agreed-upon cutoff for further losses if the business isn't recovering. This is all about cashflow so extreme measures are needed to reduce outflows and maximize inflows.
Topic Author
ElmoHongZito
Posts: 257
Joined: Tue Mar 27, 2018 9:17 am

Re: Desperately need advice regarding my business lease.

Post by ElmoHongZito »

Also forgot to add... I looked at my lease contract and I do see a section titled “Force Majeure” that reads as follows...

Force Majeure: The term “Force Majeure” as used in this lease shall include acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, riots, acts of arm forces, epidemics, delays by carriers, inability to obtain materials, acts of public authorities and other causes, whether or not enumerated in this paragraph, which causes are beyond the control of the party required to perform.

Does this mean that I am not bound to this contract due to pandemic?
smitcat
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Re: Desperately need advice regarding my business lease.

Post by smitcat »

ElmoHongZito wrote: Sun Aug 16, 2020 1:23 pm Wow! Taking allot of fire in these replies.

I’ll try to add more color and hopefully I don’t miss something that was asked.

Yes the lease contract required personal guarantees. This is not the landlords first commercial lease rodeo. He owns the entire shopping complex that has a boat loads of businesses in it.

My 51% business partner is hoping like I am that we will survive and be profitable on the other end also considering that there are competing venues that will be out of business by then. His main business which in a non-COVID world would be feeding leads to the banquet hall, is doing well. Not down vs last year but I think thats also because since people cannot do parties, they are deliberately looking for just photography and video and they are willing to allocate more money to it since that will be their only memory for their 15’s/quinces.

For the one that commented that I do not have much business experience and using the forum to seek guidance you are correct. I am not offended by your comment. At least I am open to learning unlike most people.

Have not received any relief loans or grants. PPP was not an option since we had just incorporated and also based on the way the previous business owner ran it and the timing when we bought, we have no employees.

I have been in touch with SBA and they did not know of any relief funds outside of PPP.

We do not have any business interruption insurance. My business partner had for his other businesses but apparently the way it was written excluded viral pandemic or something like that. In short, his other businesses got nothing from that policy.

I am in south florida and yes we did create a separate entity (LLC) but my understanding is that does not protect me from anything. Remember we signed personal guarantees.

I still have some hope. From about June 19 to July 4th which was smack in the middle of the pandemic I had a little run where signed about 6 or 7 contracts for events next year adding up to about 75k and its safe to say that the closing rate was high considering there was not allot people knocking on the door. It gave me a glimmer of hope that there are still people that are looking into hosting events for 2021 and beyond and if I can get them in the door, close them and put them on payment plans I can possibly create some cashflow that will help dig us out of the hole.
"Have not received any relief loans or grants. PPP was not an option since we had just incorporated and also based on the way the previous business owner ran it and the timing when we bought, we have no employees."
You do not need employees.
I am aware of business's that were just bought in Feb 2020 that received these loans - the $10K one was a slam dumk the PPP was a bit harder.
I do not know what this means "based on the way the previous business owner ran it".

"I have been in touch with SBA and they did not know of any relief funds outside of PPP."
Not the SBA - your assigned Small Business development agency person should be able to help you with many of these questions in your local area. Have you been in to see them? Or SCORE if they are lacking or unresponsive?

There are a number of fixed location business's here that have mitigated there losses by doing some pr all of these:
- sub rent some space
- do take out services
- have some services put together in a 'home use kit" ( yes... even for baking, making cookies, party packages , and entertainment)
- educational on how to work best with these issues and with Covid 19
Now is a good time to be flexible and resourceful in your planning.
smitcat
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Re: Desperately need advice regarding my business lease.

Post by smitcat »

ElmoHongZito wrote: Sun Aug 16, 2020 1:48 pm Also forgot to add... I looked at my lease contract and I do see a section titled “Force Majeure” that reads as follows...

Force Majeure: The term “Force Majeure” as used in this lease shall include acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, riots, acts of arm forces, epidemics, delays by carriers, inability to obtain materials, acts of public authorities and other causes, whether or not enumerated in this paragraph, which causes are beyond the control of the party required to perform.

Does this mean that I am not bound to this contract due to pandemic?
"Does this mean that I am not bound to this contract due to pandemic?"
Take the lease to the lawyer that you said you visited on the other thread and get him to explain all of the potential options to you.
Please bring your assett sale contract with you if he did not retain a copy.

Quoting pieces of a lease on line will not give you any answer that you can really use.
Lee_WSP
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Location: Arizona

Re: Desperately need advice regarding my business lease.

Post by Lee_WSP »

CascadiaSoonish wrote: Sun Aug 16, 2020 1:38 pm In the interest of a constructive conversation -- a few additional observations, speaking as a small business owner. Financially it's almost impossible to come up with a continued operations approach that doesn't involve digging a deeper hole. We don't know the numbers but broadly speaking it sounds like bankruptcy of the LLC would at least minimize losses. That said, OP seems determined to keep going, so I'd suggest renegotiating the rent down to zero until 2021, retroactive to the beginning of the lease. Yep, zero. It's not like the landlord is going to have better options. Offer revenue sharing if that sweetens the renegotiated deal. I also like the idea of doing some broadening of the business model such as going after photography and location shoot rentals. Cut all overhead and do not put any more money into the property than is absolutely necessary for a revenue producing activity. And right now define "go/no go" metrics for 12/31/20 and 7/1/21 with the business partner so that there is an agreed-upon cutoff for further losses if the business isn't recovering. This is all about cashflow so extreme measures are needed to reduce outflows and maximize inflows.
Agreed. Renegotiating a zero or near zero lease is the best way out. Bankruptcy is another. A third way would be to pivot to something else and use the building for something productive.

That said, option 3 requires you to make enough money to pay the lease in the first place. If that's just plain impossible, you can't even meet your fixed costs and need to shut down. Come back in a year or two.
spectec
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Re: Desperately need advice regarding my business lease.

Post by spectec »

"My 51% business partner is hoping like I am that we will survive and be profitable on the other end also considering that there are competing venues that will be out of business by then."

"I still have some hope."


Hope isn't a business plan.
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers
Johnny Sharp
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Re: Desperately need advice regarding my business lease.

Post by Johnny Sharp »

spectec wrote: Sun Aug 16, 2020 4:20 pm Hope isn't a business plan.
+1000
000
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Re: Desperately need advice regarding my business lease.

Post by 000 »

I would:
1. Stop investing time or money into the premises.
2. Try to negotiate with landlord to get missed rent waived and zero rent until the pandemic clears. It's unlikely he has any better use for the space now and my negotiating position would only weaken as more things open up.
3. Let the space sit until I was allowed to open back up.
4. Focus my efforts on looking for another job/opportunity.
5. Extra time can be spent getting the website, marketing materials in tip-top shape. I would do this myself.
6. When allowed to reopen, consider if it was worth continuing.

Also: some of your questions are better directed to your attorney. e.g. What happens if I walk away from the lease?
Last edited by 000 on Sun Aug 16, 2020 9:48 pm, edited 2 times in total.
denovo
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Re: Desperately need advice regarding my business lease.

Post by denovo »

ElmoHongZito wrote: Sun Aug 16, 2020 10:24 am Thank you in advance for any guidance that can help me put a plan together to mitigate a very difficult situation that I am currently facing and may get worse in the near future.

Always dreamed of becoming an entrepreneur and finally jumped into the deep end of the pool. Less than 2 weeks before this pandemic surfaced in the USA I purchased what is probably the worst business you can be in during an infectious pandemic —> a banquet hall. I paid cash and did not take out any business loans. Lost my corporate day job in medical device sales due to COVID a few weeks later. The business purchase was actually an “asset acquisition” (I did not purchase the corporation) and I overpaid because I “saw the potential” at the time and never in a million years expected something like this current pandemic to occur. Even though I overpaid for it, I got it for 100k less than what the owner felt he needed to sell it for and I was confident at the time that any other existing banquet hall owner in the area with capital would have scooped it up in a heartbeat at the price I got it for based on its location, square footage, layout, parking, and being a stand alone building which is rare in our local event venue market.

I signed a 5 year lease with the owner of the property at a reasonable price per square foot but because of the size of the space we’re still talking about 16k per month. The landlord terminated the lease from the previous owner and transferred his deposit to me. I still had to contribute towards a deposit because he requires 3 months of rent as a deposit to initiate the lease.

Within 2 weeks of me purchasing the business and signing that lease, all banquet halls in the county were shut down due to COVID. Fast forward 5 months and I am still closed, no income, and with no clue of when or if I will be able to open again. During those 5 months I have remained optimistic and invested a large amount into the building since it was pretty run down and there was no way (with or without COVID) that it would sustain in business without lease improvements (floors, painting, restrooms, window treatments, lighting, among other things).

I am currently 4 months behind on rent and the landlord has not been on my case because he understands that my business has been hit the hardest. At this point we are on a “start paying me rent when things turn around” verbal agreement but that does not mean I will not owe the months I have not paid. He may pardon some of it but with nothing in writing I cannot hang my hat on that and the amount he may pardon may be just a drop in the bucket.

I am now living on my savings and continue to have my brokerage account index funds as well as IRA’s with Vanguard. My wife is a pre-k teacher and we have 2 kids so her income is helpful but its still a teachers income. Thank God we have health insurance thanks to her still being employed.

My biggest fear and what keeps me up at night —> Things not turning around any time in the foreseeable future (county allowing us to reopen) and people not regaining the confidence to attend or host large gatherings and as a result staying in my business stops making sense due primarily to rent. The second thing I fear is the landlord coming after my assets (home, bank accounts and brokerage account) due to the 5 year lease contract I signed.

Any wisdom and guidance from those of you that understand what protection I may have or how I can best prepare myself to protect my family please share your comments.

Mayor says that he will begin discussions about “reopening” once the daily positive test percentage is around 5%. Two weeks ago we were at 15.4% and its slowly come down to around 11% so although that is a good advancement, we are still far from his reopening goal and hoping that there are no more spikes in the coming days. Thanks again for reading my post.
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Topic Author
ElmoHongZito
Posts: 257
Joined: Tue Mar 27, 2018 9:17 am

Re: Desperately need advice regarding my business lease.

Post by ElmoHongZito »

Just wanted to say thanks again for all the feedback provided.
Kennedy
Posts: 616
Joined: Mon Nov 10, 2014 2:47 pm

Re: Desperately need advice regarding my business lease.

Post by Kennedy »

I haven't read all the replies or OP's previous posts, but I wanted to mention that there are a TON of events that were (and will be) rescheduled from 2020 to 2021.

I'm assuming you're doing weddings? If you check out the various wedding forums you'll see that brides are very aware that 2021 dates are filling up from 2020 reschedules in addition to first-time 2021 schedulers. This is causing a sense of urgency for these brides to lock in their 2021 dates. There are reports on the forums of brides trying to reschedule for 2021 who are having a hard time finding an available date at their venue.

The remainder of 2020 and beginning of 2021 look pretty dour as far as actual events taking place, but I wouldn't be at all surprised to see a surge in bookings for mid to late 2021. Since events are often booked 9-12 months in advance, you'll probably be doing a lot of tours this fall and winter for those looking at later 2021 dates. I'm assuming you require a decent deposit upfront (25-50%?) for a bride to hold the date? This could give you some operating cash to hopefully lighten the load a bit.

Edited to add: I went back and read all the replies in this thread and see where OP said he had 6 or 7 bookings for 2021 that went under contract last month. Assuming you are going to continue to try to make this thing work, this is what you really need right now- bookings for any date in the future- as this will give you cash flow (from the hearty deposits) to work with months or a year before the actual event is to take place.

My suggestion is to discuss with your lawyer how you can word your events contract going forward so that it's clear that any government mandate that prevents an event from taking place will lead to a postponement of the event and not to a cancellation (and thus refund of the deposit). You will have to specify terms (such as rescheduling for the same day of the week they had originally booked... Saturday for Saturday and the like), but the goal is that you won't have to refund the deposits due to inability to have the event as originally scheduled. There may be some customers who balk at that, but I suspect more and more contracts will be written that way.
finite_difference
Posts: 2095
Joined: Thu Jul 09, 2015 7:00 pm

Re: Desperately need advice regarding my business lease.

Post by finite_difference »

smitcat wrote: Sun Aug 16, 2020 1:57 pm
ElmoHongZito wrote: Sun Aug 16, 2020 1:48 pm Also forgot to add... I looked at my lease contract and I do see a section titled “Force Majeure” that reads as follows...

Force Majeure: The term “Force Majeure” as used in this lease shall include acts of God, strikes, lockouts or other industrial disturbances, acts of the public enemy, wars, blockades, riots, acts of arm forces, epidemics, delays by carriers, inability to obtain materials, acts of public authorities and other causes, whether or not enumerated in this paragraph, which causes are beyond the control of the party required to perform.

Does this mean that I am not bound to this contract due to pandemic?
"Does this mean that I am not bound to this contract due to pandemic?"
Take the lease to the lawyer that you said you visited on the other thread and get him to explain all of the potential options to you.
Please bring your assett sale contract with you if he did not retain a copy.

Quoting pieces of a lease on line will not give you any answer that you can really use.
+1. Take it to your lawyer.

It looks like here they’re just defining the term “Force Majeure”. You need to find where that term is used.

The lease could very well state that “Force Majeure” is *not* a legitimate reason to cancel the lease. Or perhaps your lawyer put in a “Force Majeure” clause for you.

I would definitely argue that the pandemic falls under the category of “Force Majeure”, but I am not a lawyer.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
neverpanic
Posts: 486
Joined: Sun May 10, 2020 12:26 am

Re: Desperately need advice regarding my business lease.

Post by neverpanic »

Walk away or pivot.

What solutions are people looking for now? The biggest need I see are educational/day care pods for parents who are tired of forced homeschooling and who need to work. Neighborhood parents are opening their own private mini-schools. Can you provide some sort of pod-based resource for people with similar needs? Is your county fast-tracking approval of differential learning businesses? That's probably wistful thinking on my part.

Get that zero lease first. Then make your landlord a revenue share agreement on the back end. Take care of the space, but not invest any more capital until you know you will be opening.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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