Keep Working with a Defaulting Tenant?
market) have landlords considered and
perhaps acted on a tenant's request to
grant them abatement, deferrals and
other concessions in order to preserve the
relationship, avoid vacancy, make their
lender happy and keep the rent coming
in? More often than you might imagine.
Although there are clearly self-interests
on both sides in the decision to allow the
tenant to pay partial rent or defer overdue
amounts under the lease, often landlords
and tenants enter into such discussions
with the best intentions for all involved.
Yet, even the most benevolent agreements
can lead to negative consequences down
the road.
A landlord approached by a tenant
with a request to vary from the terms of
the lease agreement has a number of
primary considerations to take into account
before continuing this conversation:
indus-trial park or office building to
the image or viability of the asset?
selling the project?
together the landlord is comfortable
moving forward with a discussion about
the request for a change in the rent and
parties should try to come up with a
framework for addressing the landlord's
concerns and tenant's needs. But be
careful!
Consider this example: A mid-sized
shopping center anchor is four months
behind in minimum rent and is slow
paying. Taxes, Insurance & Common Area
Maintenance (TICAM) explains that it
is experiencing operational difficulties
and reduced cash flow. The tenant has a
plan that specifically addresses how it is
going to address and solve these issues,
but part of that involves an abatement
or reduction in rent for a period of time,
with an agreement to amortize the past
due amounts in future rent payments. The
landlord's cash flow at the center is strong
and its lender is generally happy with the
status of the loan and the asset.
However, the landlord has plans
for refinancing the loan to allow for
an expansion of the center in the next
year, possibly requiring a relocation of
tenant litigation, lease drafting and negotiation, commercial
and residential real estate practice disputes, and general
commercial litigation. For over 20 years, he has been actively
engaged in negotiating, modifying and litigating leases
involving retail, industrial, office and residential properties.
2600 One Wells Fargo Center
301 South College Street
Charlotte, North Carolina 28202
Fax: 704.372.2619
horacktalley.com