REAL ESTATE NEGOTIATIONS Just a thought

For Landlords and Tenants, it is time to talk. 

“In light of the interrelated business and legal considerations involved with any commercial lease restructuring transaction, the million-dollar question is: Which party has greater leverage at this point of time?” 

In the short term it is clear that the pendulum has swung to be more favorable to tenant. Since New York courts, as well as in many other jurisdictions, courts are closed, until courts open and our world gets back to business in the new norm, Landlords have no ability to hold a tenant responsible for rent defaults.  Certainly, a tenant can just hold the rent and pay the day that the courts open, or even delay beyond that as the actions for default remedies and eviction proceed. While that might create some extra fees, the delay for a business owner not sure about his or her viability, may make for a strategy that might indicate its own benefits, with small downside, especially in a world that will be filled with disputes over governmental edicts requiring businesses not to open, use its space and other lease clauses like whatever the force majeure language. 

That being said, the aggregate of the circumstances associated with the current COVID-19 crisis have created not only potential legal and business arguments favoring tenants — but also equitable and economic grounds which some landlords and many courts could find compelling.

Since the rush to the courthouse is simply not pragmatic for landlords, or even legally possible in New York and many other areas, based on existing enforcement moratoriums and resource-related constraints in various jurisdictions located throughout the country, now is the time, in good faith, while we are all in this together, for the Tenant to approach the Landlord and seek forbearance and modification agreements. The request is worthwhile --for the worst is the Landlord will say “no” and then Tenant can make appropriate decisions. 

In many instances, the landlord’s lender, may be a guiding factor in the Landlord’s determination, but there is anecdotal evidence that Lenders will give some level of loan forbearance, and if enough tenants reach out to the Landlord, and the Landlord seeks assistance on the loan to be able to offer the downstream assistance to the tenant it may flatten the curve of facing a much greater landlord-lender issue when assessing tenant defaults over the coming months if no assistance occurs now. 

We all acknowledge there will be a new norm. Now is the time to open up discussions, so we can work with each other in the short term and later, when we see the beginnings of the new norm, the parties can agree to shape their futures, based upon this better position of present good faith negotiations rather than figuring out who will win that war without the discussions in the now.  Just a thought.