Negotiating rental contracts in times of COVID-19

Story: Gautam Viswanathan

The impact of the COVID-19 pandemic on markets in the Sultanate began soon after the disease came to the Sultanate.

Some businesses were able to adapt, readjust and resume work under the new conditions they faced, but others will need for the situation to improve before they can begin to get back to regular operations. As a result of decreased income into the coffers of many companies and the pockets of people, many simply haven’t been able to pay their rents on time.

Having never previously faced an unprecedented situation such as this, real estate companies have decided to provide their customers some relief during these tough times, in response to many tenants requesting a relaxation in rents during this time. Some have allowed for their customers to pay their rents once things begin to ease up, others have graciously reduced the amount owed to them.

But companies are making sure measures taken are only extended to those who really need it right now: they too, after all, need to ride out the current storm.

“Many of our tenants and corporate clients have been facing difficulty during these times,” said Fahad bin Sultan Al Ismaili, the CEO of Tibiaan Properties. “There have been, therefore, situations where they could not meet their obligations when it came to paying rents. Some measures had to be taken to address this. People understood this was a difficult time that we all have to face, while making sure the damage felt by it is minimum.”

Involved in both the rental and sale of property, Tibiaan’s portfolio extends to many parts of Muscat, and includes both villas and flats in many popular residential areas such as Azaiba, Boushar, Qurum, Al Khuwair and Al Hail.

The company are also working on many mixed-use residential and commercial properties, which extend to Al Muzn Residences, an apartment complex in Mawaleh North, The Beach, a series of townhouses and villas located – rather aptly for its name – by the beach in Azaiba, and Ghoroob, a collection of villas in Boushar.

One of Tibiaan’s commercial projects that are currently under development is the Qabas shopping centre that spans 8,000 square metres, and is looking to attract international brands to Oman. While these projects are expected to provide dividends, that depends on securing demand for them.

“Honestly, in the real estate market, the main drivers and supply and demand, so it is very difficult to predict which sector will pick up soon. All of this depends on what will have more demand,” said Al Ismaili. “Many individual tenants have left the country, many of them have unfortunately lost their jobs, and many of them have had some impact on their monthly salaries, so there is a big drop in demand here.

“At the same time, a lot of commercial tenants do have difficulties right now due to the non-availability of disposable income, and the reduction in purchasing power. We should not, also, disagree with many of the ideas that have come up lately regarding going digital, working from home, and setting up virtual meetings, so the supply and demand over the coming period will shape its way as we go through this period. We’ll have to wait and see how the market moves in the coming months.”

To assist tenants who might have been affected by the economic impact of COVID-19, various mechanisms have been brought in to provide some form of temporary rent relief to tenants who might not be able to pay their rents.

Some landlords in the country have temporarily cut rent prices in half to help their renters, and Mohammed Al Zadjali, the owner of Oman Triangle Real Estate Investment, agrees with the consensus that both commercial and residential tenants have been hit by the pandemic. He’s also asked more landlords to allow their tenants to postpone rent payments during such a trying time.

“There has been a significant drop in rent from both sources,” he admitted. “We do anticipate rents to pick up again, but they will rise gradually. It will take some time – six months to a year. It is not a good time now for rents to pick up again, nor will they pick up very fast, so it will take some time for rents to recover.”

“Landlords should also help tenants during this time and reduce the rents by at least half their value, or give them even a two or three month waiver, if possible,” adds Al Zadjali. “They are facing a struggle.”

But the impact of COVID-19 has not been equal on everyone, with some impacted far more severely than others have been. Real estate companies, who themselves are dealing with reduced sources of income, have decided to provide rent relief to tenants on a case-by-case basis, as the cost of bringing in blanket measures that cover everyone will come at a rather high cost.

“This is affecting everyone, but there are businesses that are doing well,” says Ihsan Kharouf, head of Oman for property development company Savills. “There are, in fact, some businesses that are doing even better because of the pandemic, such as logistics, transportation, and home delivery. There was an attempt by them to ask for blanket discounts, because everyone did at the beginning, but we do advise landlords to look at each of the cases and deal with each problem individually.

“We need to ensure that our tenants do not go under, make sure they are not evicted owing to situations that can be managed or mitigated,” he added. “There are people who have not been hurt by this, but will still go ahead and we reject their requests, unless we can see some sort of evidence as to how they are impacted by this.”

Requests for rent reduction or reschedule need to be accompanied by documents that show why tenants haven’t been able to pay their rent on time. Corporate clients need to show proof of their company accounts, which, should they have been impacted by the pandemic, would show a decrease in their volume of business.

“Running accounts would be made available, and you can immediately see if there has been an impact by COVID,” explains Kharouf. “We can definitely see this with, say, all business relating to travel, conferences, exhibitions, things like that, where their business has not just gone down by say 10 percent, but it has gone down to close to zero for the whole period.”

While everyone has been affected differently by the pandemic, what is clear is that its impact has been felt by everyone, and will require all of us to cooperate if we are to make it through unscathed. Fahad Al Ismaili probably puts it best.

“This is a situation everyone is in,” he explains. “The way we cope is by cooperating with everyone in the market, be it our tenants, our clients or our employees. When the problem is generic and everyone is sailing in the same ship, we have to find ways for common ground and not find ways to create more damage. It’s the only way to get over this pandemic.” – [email protected]