Q: I own office space in Suffolk County and rent to a retail tenant that has been timely with their payments over the past five years. Their lease is due to expire in mid-2015, but the tenant recently requested a reduction in rent for the remainder of the lease, as business has been slow. The tenant has verbally assured me that they will pay the reduced rent on time and will renew the lease when it expires. Knowing that the tenant is having financial difficulties and before I commit to reducing their current and/or future rent, is there any language I should include in the new lease or a separate agreement in order to protect me in the event they default?
A: You should consider, not reducing the rent, but rather deferring the amount by which the monthly rent is reduced and have the repayment of that personally guaranteed by the principal of the Tenant. Over the remaining balance of the lease term, you can then evaluate the tenant’s financial condition [request financial statements, references and tax returns] and determine whether you wish to renew or extend the tenancy, and under what terms. In evaluating those considerations, you can then “factor in” repayment of the deferred but guaranteed amount, without presently waiving the right to collect such sums under the lease and from the guarantor [as further security].
Abraham B. Krieger is Co-Chair of the Commercial Real Estate practice group and a member of the Corporate Finance Law practice of Meyer, Suozzi, English & Klein, P.C. located in Garden City, Long Island, N.Y. Mr. Krieger joined the firm in 2007 focusing his broadly-based practice on representing businesses and individuals in commercial and residential real estate lending, sale, and lease transactions and real estate, lease and commercial litigation. An integral portion of his practice includes representing commercial lenders and borrowers on real estate fiduciary transactions and title insurance companies on defending fee title and mortgage validity claims.