What if you don’t have excess space, but you are struggling to pay your rent?
You can propose to the landlord that the lease be restructured and modified to lower your rent.
If you are a tenant seeking a lease restructure, what are some things to consider?
You will need to develop a strategy for convincing the landlord that the landlord is better off keeping you as a tenant and restructuring or modifying the lease. You should be prepared to communicate honestly with the landlord about your financial position and plans and to share financial information. You should present the landlord with a business plan that demonstrates that you will be able to comply with the restructured or modified lease for the entire term.
If you are the landlord, how do you respond to a tenant’s request for lease concessions?
You have to weigh the benefits of keeping the tenant with lease concessions against the costs of finding a new one. You have to consider the effects of a tenant bankruptcy, including the cap on damages that you can recover from a bankrupt tenant as well as brokers’ commissions and tenant improvements for a new tenant. If you proceed with a lease restructure, you should first verify the tenant’s financial condition and consider whether its business projections are realistic. You should consider increasing the security deposit, obtaining a letter of credit or a personal guaranty and extending the lease term. You can add a provision to the restructured lease that would allow you to recapture all of the rent and other concessions if the tenant should default. You also may want to require the tenant to pay your legal fees for the lease restructure so that your tenant does not drag out the negotiation process. And don’t forget to check your loan documents to see if your lender has the right to approve the lease modification.
What steps can be taken to make sure both parties’ needs are met when negotiating the lease restructure?
Circumstances vary. Typically the landlord will want a written agreement with the tenant at the outset, stating that the old lease terms will remain in effect until a lease amendment is signed. The tenant should work with an attorney early to ensure that the parties reach agreement on lease restructure as soon as possible and the modification terms adequately protect the tenant and give the tenant breathing room to continue its business in the space.
Juliana Stamato is a real estate attorney at Theodora Oringher Miller & Richman PC. She has extensive experience in leases and loans, including workouts. Reach her at (310) 788-3526 or [email protected].
