Industrial actual property landlords rely upon the success of their tenants to proceed to pay hire and in any other case fulfill their lease obligations. If the tenant’s enterprise is struggling, it could have problem paying the hire and default will not be far off. Even when the struggling tenant is ready to proceed to pay hire, they might come to landlord to request some type of hire deferral or different aid or maybe lease restructuring, together with downsizing or early termination.
As a preliminary matter, the landlord must know its lease and landlord’s rights and cures beneath the lease in addition to at regulation. The owner ought to get its authorized advisor concerned early and hold its authorized advisor conscious of potential lease defaults. As time passes, choices and cures could shut.
However finally each distressed tenant could have a special scenario and story to inform. Every could have a special strategy to dealing with its lease obligations. Following is a primer to assist the industrial landlord put together for the default dialog with the tenant by trying on the completely different potential varieties of defaulting tenants it could face and recommendation on learn how to deal with every kind.
The Ghost. The Ghost is a tenant who both simply disappears or at the least could be very unresponsive. This will both simply be battle avoidance or a deliberate tenant technique. With the Ghost, it’s finest to maneuver quick and aggressive. Don’t be lulled into inactivity. However, on the similar time, the owner should observe correct procedures beneath its lease and at regulation. Watch out to not inadvertently create a tenant declare towards landlord. As soon as the owner can get on prime of a Ghost scenario, it might want to make an sincere cost-benefit evaluation of how finest to proceed.
The Fighter. The Fighter will contest the whole lot. Once more, both as a result of that’s its character or as a deliberate tenant technique to throw the owner off stability and hopefully trigger it to make a expensive mistake. With the Fighter, it is going to be much more vital to doc the whole lot and watch out about making any statements that may very well be used towards the owner. Additionally, be careful for potential defamation or tortious interference claims. Don’t let feelings get away from you.
The Everlasting Optimist. The Optimist believes its troubles are solely non permanent and over time will simply go away. The Optimist could make unrealistic monetary assumptions concerning the future. With the Optimist, insist on clear, third-party (or verifiable) reporting. Rigorously overview monetary fashions. Speak to 3rd events concerning the tenant’s enterprise prospects. Push for credit score protections and extra cures if tenant’s projections develop into flawed. And, as with every tenant, take care to not waive any rights or cures.
The Dealmaker. The Dealmaker at all times believes there’s a technique to restructure the lease obligations to style a “win-win” for landlord and tenant. As with the Optimist, get stable monetary studies and take a look at assumptions. Pair any hire modifications, comparable to deferrals or abatements, with claw backs and different protections. Don’t assume different landlords or distributors of the Dealmaker are additionally slicing offers. Attempt to keep away from being the creditor taking the most important haircut.
There’s additionally the class of the really bancrupt tenant headed towards chapter. On this case, get your chapter legal professional concerned early, observe the chapter proceedings carefully and don’t miss deadlines. Dealing with defaulting tenants is time consuming and may be aggravating, however a considerate technique tailor-made to the kind of distressed tenant helps in resulting in one of the best outcomes.
Theodore Yi, Charles Harper, and Adam Falkof are companions with Quarles.
