Drive thru tenant - NNN Lease
Jack in the Box ("JITB") (franchisee) operates on a property for my client. JITB corporate sent a letter 10 days ago saying "we want to work with you over the coming weeks to figure out what arrangements may work.." A completely vague notice that does not say anything really (comparing to the notice Cheesecake factory published). The phone number provided has a mailbox that's full so you can't even get through to anyone. Nowhere does it say we won't be paying rent on the 1st. Spoke with my client this morning - JITB did not pay rent. 

They have shut down their dining room, but still operate a drive thru. The drive-thru before Covid was the main source of revenue for them. This is not a situation of a retail tenant who had to shut down entirely. 

The rent they're paying is under market for the area (they've been at the location for twenty years). Per the Lease agreement, LL has to provide notice within 15 days so they can cure it. Even given the circumstances in the market, I think i could help my client get an attractive tenant in that space (given its location) likely at the same rent or even higher. 

I really appreciate and respect the opinions on this subbreddit so was curious to see how others are dealing with other national retail tenants that operate drive thrus (I saw a mention of Chipotle last night too) and how they are approaching the situation. Thank you!
[{"id": "fm4ubb7", "text": "I would notify them that they are in default with 15 days to cure. That will probably speed up their internal process. Obviously all LL's should be working with their tenants to the extent that they can, but you can't just spam a generic letter nationwide then stop paying rent. At the very least, there need to be open discussions, ideas exchanged, financials provided, and an amendment signed to deal with the outstanding back rent.", "replies": [{"id": "fm4zz8j", "text": "My thought exactly. I assumed they would pay this month and reach out to discuss Q2 payments.", "replies": [], "depth": 2}, {"id": "fm68m8m", "text": "Before notifying them of default, have a good understanding of the force majeure clause in your lease. They are more likely than not to enact the clause and say that LL cannot claim default or pursue remedies. \n\nIt is a much better idea to start the discussion. The generic letter is because the are sending this letter to all of their landlords. I would say encourage your client to be proactive and focus on obtaining more information, extending the lease at a better rate, and ultimately working out some payment of rent since they are still operating their business, maybe as a percentage of the sales they are seeing. \n\nAs soon as you go to default or pointing out specific terms in the lease, things get a lot tougher. More likely than not, they have a much better and well funded legal team than your client does.\n\nWhatever they are sending to you, speak to your lender and seek their advice plus ask for mortgage relief in the short term.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fm4yetr", "text": "Ground lease?", "replies": [{"id": "fm4z84s", "text": "Correct, Ground lease. NNN, No LL obligations.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fm50ebn", "text": "Definitely request financials but while you have them at the table don\u2019t miss out on the opportunity to extend the lease by giving a few short term concessions in rent. Then it\u2019s a win win for both parties. I wouldn\u2019t exactly assume another tenant could be found immediately given that we don\u2019t know the full magnitude of this disruption and how long it will last. Take the bird in hand. If you get a long term lease out of the deal, let the market settle and put it on the market.", "replies": [], "depth": 1}, {"id": "fm56yxl", "text": "I would get eyes on the property and see how much business they are doing through the drive through, if lines are forming, etc. This will give you some ammunition for negotiations", "replies": [], "depth": 1}, {"id": "fmjgo2e", "text": "It's sad to say the times were all in. Being in the industry myself, I'd say this is unethical on their part. I sense a lot of bad actors taking advantage of covid19 circumstances.\n\nThey operate a drive-thru store, which by the way, is usually 40 to 60% of your sales, rest being walking. So, you can safely say out of traditional 60% in sales, now down to 30% of avg JIB (1.8)\n\n Hence, I don't see how in a few weeks of negative sales would prevent corp (assuming it's corp guarantee) from paying. Obviously, in such circumstances, the franchisee would have reduced labor to none existence.\n \nA lot of franchisors are informing franchisees to reach out to their LL for assistance. While corp is trying to hang on to cash flow, thus sending a generic letter to all their LL, this is why you're most likely receiving a generic message. They're waiting for your client to reach out to them to asa k for rent extension.\n\nThere is no point in asking for financials because a corp leases are sub lease to franchisee, and no way in hell the franchisor is sharing confidential #s with LL. \n\nIn some instance of the lease, LL are notified of revenue is the clause exists, but this is for the percentage lease.\n\n\nMy suggestion is you write a certified default letter demanding rent payment. This is when you will / may actually get to talk to someone.", "replies": [{"id": "fmjlfk6", "text": "Thanks for your thoughtful message. Yes I agree - we had it sent out on April 2nd with overnight mail. Figure they\u2019re waiting to see who takes a proactive approach and who lets them get away with it.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fmk1bp4", "text": "I\u2019m working with a number of franchisors/franchisees and working through tenant/landlord communications right now. Also working specifically with a few JITB operators. Many are asking for 3-4 months but some even for 6 months and while it may be too early to grant, their reasoning is that once this smooths our you\u2019re not going to hit the on button and see sales pouring back in immediately. They\u2019re all expecting additional slippage leading into the few months after being up and running. With that said, you\u2019ll want to request additional information before any specific remedies (unit sales, P&amp;L, specific numbers relating to that particular store, etc.). Some tenants are sending blanket requests, but however unfortunate, it is an opportunity for landlords to negotiate something in return. Ultimately, I believe it\u2019s in everyone\u2019s best interest to find a win-win, keep the business in business, and maintain the cash flow, but these are also business driven decisions that must be made on all sides. Hope that helps! PM me to discuss in more detail.", "replies": [], "depth": 1}]