Keeping the lights on and the doors open: negotiating lease concessions for the cash-strapped tenant.

• Author: Syz, Jeremy
• Position: LEGAL INSIGHT SPECIAL SECTION

It is late on a Friday afternoon. You have been dealing with month-end collections all week and are looking forward to the weekend to get out of town. After a knock at your office door, your bookkeeper steps in, looking more frantic than usual.

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Times have been tough, but he has always managed to find a way to make your suppliers, vendors and creditors happy. Something tells you this time is different. "Boss," he says, "our rent is due next week We don't have the money. We can't pay."

For many tenants, the inability to pay the rent may seem like the end of the road for the business. However, in many cases, all is not lost Just as business owners continue to face financial hardship, the same is true for landlords. Indeed, in many markets, simply having tenants who occupy a space and bring customers to a commercial property is now at a premium.

Five years ago, landlords had the upper hand, and swiftly moved to evict tenants who failed to pay rent. Today, landlords are often willing to work with existing tenants and keep them in place to avoid the prospect of darkened store fronts and empty parking lots. Landlords are also more eager to avoid costs associated with finding a new tenant, negotiating a new lease, and paying for brokerage commissions and tenant improvements, not to mention the cost and uncertainty associated with an empty space until a new tenant is found.

A cash-strapped tenant may find that its landlord is willing to help keep it in place, even if that means making concessions under the lease. For a tenant who foresees an impending inability to make rent payments, there may be options to keep the lights on and the doors open.

Setting the Stage

Before a tenant approaches a landlord to discuss modifications to a lease, the tenant should first closely examine its own financial capacity and assess the long-term viability of its business. Lease concessions are a moot point if the tenant's business simply isn't going to survive. However, if the tenant is merely experiencing short-term cash flow problems, but otherwise has a viable business, a tenant is well advised to focus on its business fundamentals, the reputation and integrity of its owners, and its motivation to return the business to profitability.

By affirmatively seeking to prove to a landlord that a tenant and its business is deserving of concessions, a landlord may be convinced that the tenant is worth immediate rent relief or other lease concessions.

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