Sometimes, when you think you’ve won, you’ve really lost. In my most recent case, I was very successful in working out a bad lease for a client.  Prior to coming to me, the client had been through several rent deferments.  The deferments had come due and the landlord was unwilling to give any further accommodations.  After months of negotiation, the tenant thought she had the parameters of a lease extension.  But, there were numerous open issues and financial terms to address.

After discussing the client’s financial position, I was able to negotiate a write-off of the deferred rent, over $300,000, and a tenant improvement allowance to modernize the space in exchange for only a 3 year extension of the lease and a slower increase in the rent. Only the TI would be guaranteed.  These negotiations took over 2 months.  We determined that the tenant did have an A/R balance of under $20,000 which would have to be paid as a condition of the new lease.  The client assured that the could make this payment and could fund any tenant improvements in excess of the TI allowance.  The tenant signed the new lease in early September.  We all felt like this was a win – the landlord, tenant and I.

After Hurricane Irma, I called to check on the client to make sure everything was ok as I had not received the fully executed lease back from the landlord. She complained that the landlord was stalling on signing the lease and therefore, she couldn’t start the TI.  Before I volunteered to check on this, I probed.  She complained that business loss was significant due to the hurricane and its aftermath and she was not able to make the promised payment and that landlord was being unreasonable, refusing to work with her.  Alarms started going off all around me.  This money should have been available before the hurricane at the time the lease was signed.  She started pointing fingers at everyone again – the landlord, the property manager, her partner, FPL, me.  Clearly, the issue was, is and always has been the tenant’s inability to pay the rent and other obligations prior to and since the execution of the modification.

What appeared to be a big, hard fought win looks to be turning into a loss. Could this have been avoided?  I don’t think so because the tenant, the client, has not been honest.  Mostly, she has not been honest with herself about what she could and could not afford.  But she also wasn’t honest with me and therefore, I could not properly advise her or handle the negotiations.  Expectations were set based on false premises and when we thought we had a win, we really lost.  Any bargaining position we might have had was lost as soon as she signed the lease.  If the tenant did not have the financial wherewithal to meet its obligations, either under the prior lease terms or under the renegotiated lease terms, she should have never signed the new lease.  As a result, we have lost the thrill of victory and now feel the agony of defeat.

We have all been there. We have negotiated deals where we’ve poured our blood, sweat and tears.  We have pushed and been pushed.  Our clients have struggled with decisions and asked for “one more concession”.  That concession causes the other side to ask for one more concession.  But finally, the deal is done.  The contract or lease is agreeable to both sides.  And then, the other side, the big corporation, has to “send it to committee” for approval.  The approval comes back with the deal killer term.

That is where I am today. My tenant client had run out of rent deferrals in a shopping center lease.  We negotiated a lease modification and extension where the deferred rent would be forgiven, landlord would provide a significant TI allowance and the base rent would be adjusted down to something the tenant could afford.  In exchange, we agreed to an extension of the term and to percentage rent.  We haggled for 2 1/2 months over every paragraph, sentence, clause and term.  In fact, my client had negotiated the modification for over 2 months before retaining me.  The landlord had geared up for eviction more than once.

But we crossed the finish line and agreed to terms. I requested execution copies.  But first, landlord had to get “committee approval”.  4 days later the phone call came.  The landlord, a well known mall developer and operator, had reviewed the terms of the modification in committee and made an adjustment.  Committee decided that the breakpoint for the percentage rent had to be adjusted downward to the last 12 months of tenants gross sales.  Of course that was unacceptable.  My client has been operating at a loss at the current level of sales which is why we she had been on a deferred rent program and why we were modifying the lease.  If the remodel were successful in achieving an increase in sales as we hoped, she could not achieve profitability.  And, the landlord would not allow for the break point to increase despite the fact that base rent would increase during the term.  Landlord was setting tenant up for failure.  They weren’t even considering tenant’s equity injection for its share of the cost of the TI.

If landlord continues to refuse to modify its position on this point, tenant will be forced to move out of the mall or to simply close. Where we thought we had a final agreement, one we thought was ready to go to signature, we only had a term sheet.  This “term sheet” cost the client nearly 5 months of time, time which could have been spent locating another space outside the mall, not to mention legal fees and design fees for the new remodeled space.  The client is beyond frustrated and it is difficult to explain how a major corporation can act this way and in cases like these, it is also very difficult to manage expectations.

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