When tenants attempt to negotiate their leases in response to virus-driven shutdowns, and house owners attempt to reduce the injury and keep in enterprise, each events ought to take into accout some methods and likewise some potential traps and pitfalls. My earlier article mentioned a few of these. Listed below are a couple of extra.
When tenants attempt to renegotiate leases, what ought to property house owners take into accout?
Any request for a lease modification provides an proprietor a gap to attempt to change the lease in ways in which would possibly profit the proprietor. It may be a two-way road. Has something within the lease been an issue? Does something have to be mounted? Did the proprietor make some closing concessions in unique lease negotiations that the proprietor would possibly now have a chance to undo? And would possibly it make sense for the proprietor to attempt to receive a lease extension – or a proper to terminate the lease early – as a part of the worth of no matter concessions the tenant requests?
Whether or not or not the proprietor already has in thoughts any enhancements within the current lease, the proprietor might want its counsel to learn by way of that lease, in search of issues or hassle, provisions that advantage modification. The issue with that, after all, is that the proprietor’s counsel can nearly all the time discover one thing that might stand enchancment; the associated fee and timing of the seek for inferior lease language could make no sense; and the tenant will in all probability attempt to reject something the proprietor proposes anyway.
So, though a full evaluate of the lease could sound like a good suggestion, it’s not one thing for which the proprietor ought to tolerate a lot delay or additional expense. Possibly counsel ought to simply test for some excessive factors, comparable to whether or not the lease supplies for a late cost and default curiosity and any “magic language” obligatory below state regulation. If not, now is perhaps an excellent time so as to add such measures.
Conversely, as soon as the events have agreed on a lease modification, the tenant will sometimes attempt to make the lease modification course of as easy and fast as potential, helpfully offering a primary draft of a really minimalistic modification that accomplishes solely what the tenant needs to perform. The tenant could do that partly within the hope that the proprietor received’t contain counsel in any respect, or assume an excessive amount of concerning the lease modification.
Typically, an proprietor shouldn’t simply signal no matter lease modification the tenant sends alongside. At a minimal, the proprietor ought to insist on having the tenant affirm the standing of the lease. For instance, does the tenant have any claims towards the proprietor? Did the proprietor ship the house as required? Does the tenant assume it’s entitled to any refunds? A lease modification is a superb event to tie down these points and attempt to get rid of them. Ideally, the proprietor will be capable to require the tenant to waive and launch any points however, if not, the events may have to barter a decision. The proprietor doesn’t wish to be taught concerning the tenant’s points 20 minutes after accommodating the tenant’s request for a lease modification.
Turning to the substance of a lease modification, earlier than an proprietor waives, excuses, or defers lease, the events would possibly first discover different methods to cowl the tenant’s lease through the shutdown interval. For instance, if the proprietor holds a safety deposit, the proprietor would possibly apply it to the unpaid lease and provides the tenant a very long time to replenish it. If the proprietor nonetheless owes the tenant something on account of a tenant enchancment allowance, the events would possibly repurpose these funds and use them to pay lease.
The proprietor would possibly moderately ask the tenant to cowl the owner’s authorized charges in negotiating any lease modification. As a sensible matter, tenants usually refuse to do this, as a result of the tenant’s lack of funds (or a minimum of asserted lack of funds) drives the entire train.
And generally an proprietor can cease the complete lease modification course of by asking for monetary details about the tenant and its guarantors.