These are quite unprecedented times to be a commercial landlord. Landlords are now faced with the unique challenge of negotiating with well-minded and previously well-paying Tenants who can no longer pay rent due to the economic challenges posed by COVID-19.
For these situations, evictions may be economically impractical because a substantial financial recovery will not be had. Sometimes the smartest solution is for the landlord and tenant to gather together and effectively terminate the lease in a manner to effectively transfer property rights back to the landlord and afford the landlord consideration for releasing a tenant from future lease payments. There are several legal considerations the landlord must consider, but an overlooked item is sales tax.
Commercial tenants remit sales tax to their landlords with each lease payment. Florida Statute 212.031 requires landlords to remit this collected tax to the state. Sales tax, in conjunction with any surtax imposed by the local county, must be paid both on rent and any other item conditioned upon occupancy. This would include common area maintenance paid by the tenant and property taxes paid to the landlord by the tenant.
Where a landlord is gracious enough to permit its tenant to terminate the lease, the landlord should make certain any consideration received as part of the agreement to terminate is not deemed a payment of rent.
For example, an agreement where a landlord permits a tenant to vacate the leased premises in exchange for a one-time payment of all rent due for the remainder of the calendar year may attract unnecessary scrutiny from the Florida Department of Revenue and require the landlord to remit sales tax.
This sales tax consideration perfectly exemplifies the need for both landlords and tenants to retain their own independent counsel when negotiating the termination of a lease.