The Landlord’s Response to a Retail Tenant’s Request for Rent Reduction

Retail landlord’s everywhere have almost certainly experienced tenant requests for rent reductions during these challenging economic times. When responding to such requests, the landlord should consider doing the following:

1. Require a written confidentiality agreement before discussing any rent or other lease modifications with the tenant, to reduce the risk of opening a Pandora’s Box with other tenants.

2. Ask the tenant to provide a current financial statement, a report of annual sales for the last 2 years (to show trending), and the most recent income tax returns, to assist the landlord in confirming the need and amount of an appropriate rent adjustment.

3. Ask the tenant how he or she plans to repay the abated rent, explaining that any abatement is merely a temporary measure to improve cash flow, and must be tacked on to the end of the lease or otherwise included in a restructure.

4. Inform the tenant that any abatement will be personal to tenant, and non-assignable, and will be conditioned on the following:

(a) Tenant shall remain open for business and not be in default beyond any applicable cure period;

(b) Tenant shall report its gross monthly sales to landlord by the tenth day of every month;

(c) Landlord shall have the right to terminate the lease and recapture the space, upon sixty days prior written notice, for the duration of the lease term;

(d) Tenant shall forfeit any options to renew or extend the lease;

(e) Any exclusive use provision in the lease shall be stricken.

(f) Tenant shall provide landlord with an estoppel certificate confirming the lease is in full force and effect, landlord is not in default or breach of any lease provision, and tenant has no right to any other credits, reductions, offsets, defenses, free rent, rent concessions, allowances or abatements of rent under the lease;

(g) Tenant shall obtain the prior written consent of any lease guarantors for the proposed amendment or modification of the lease; and

(h) In the event of an uncured default or breach of the lease, then all conditionally abated rent shall become immediately due and payable to landlord.

Any modification of lease terms, including the abatement or restructuring of rent, should be properly documented in the form of a mutually executed amendment to lease, using terms consistent with the lease and prior amendments, by a lawyer or broker skilled in drafting such agreements.