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Legal tips for landlords, big and small: The pros and cons of rent abatement

Published on Tuesday, June 12, 2018

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Legal tips for landlords, big and small: The pros and cons of rent abatement
By BRIAN MILLER
THE MILLER LAW FIRMA

 Whether a large commercial landlord, or a mom and pop landlord renting out space in a small commercial outlet, at some point one of your tenants will make “the Call.” All landlords dread the Call. “I will be running a bit late this month,” which is usually followed by “I will be running a bit short this month” until finally, “I don’t have the rent,” or worse yet, dead silence.  

Yes, there is a process for evicting tenants. These processes vary from state to state, and there have been volumes of articles written about how to evict tenants and how to win a judgment. In South Carolina any good collections attorney will tell you a judgment is often not worth the paper it’s printed on. Wise landlords require small corporate tenants to sign personal guarantees, as the old adage “you cannot squeeze blood from a turnip” rings especially true in the Palmetto state since the Courts won’t allow you to garnish wages.  

Also, oftentimes the tenant does not want to be evicted, but wants to renegotiate the deal. Many times, tenants will insist, if only I had a few months relief I could turn this thing around and then we would both make a fortune. Sometimes this is false advertising or delusional thinking, but there are those times when the tenant is right, and it is up to the landlord to weed out the good tenants from the bad in helping determine who needs and merits some assistance.

A few key points from one attorney’s opinion:

Do not overvalue a longstanding tenant  

Sure, the tenant may have been paying you for years, but if so, why is the tenant having trouble now? Generally, the longer the business stays open the more reliable it becomes, so why the sudden change? Has the tenant changed its core focus? Has the tenant been disproportionately impacted by circumstances outside of its control (a great example, a bad winter which forces an otherwise successful restaurant to be closed too frequently) or is the tenant in a dying marketplace. (Is it selling videos and DVDs in the age of Netflix?).  Knowledge about your tenant should help you decide whether it is even worthwhile to consider rent abatement.  If the tenant is likely to fail even with your help, you may not be doing the tenant any favors. Sometimes offering a tenant a reasonable termination fee may be more valuable for both you and the tenant.

Did the parties overvalue the rental market?  

So you are charging $35 per square foot, but no one else in the area is paying more than $28 per square foot. You congratulated your broker on getting a great deal, but now the tenant cannot afford to pay. This may be a prime example where rent abatement makes sense. You are not likely to find a better paying tenant on the open market, plus you will have to pay the costs of reletting the premises. Yes, you always have a legal remedy against the tenant and the guarantors, but legal remedies cost money, and often have unreliable results. Providing the tenant some assistance on the front end of the lease may be a win-win for the parties.

How long will the space go unoccupied?  

The number one question to ask yourself when considering rent abatement is “Can I do better?” Large commercial landlords may be able to afford to take a few months no rent more easily than smaller landlords, but all landlords need to worry about the perception of the vacant space. Tenants want to believe they are in a prime location and if a landlord cannot quickly rent out space then even good paying tenants may look to change locations at renewal time. It may be worth it to offer some help if no one else is lining up to lease the space.

If a landlord does decide to offer rent abatement, landlords should also consider the following as up for renegotiation:

  • Termination provisions. A landlord may want a way to get out of the lease in case a more viable tenant comes along.
  • Relocation provisions: A tenant may have struck the relocation provision in the initial lease, but a desperate tenant is usually more accommodating.
  • Default provisions: It may be time to review your default remedies.  At a minimum ensure you can recover attorney’s fees and costs in the event of a default.
  • Personal guarantee:  If you did not get a personal guarantee before signing the lease, now is the opportunity to try again

No matter what you decide to do being a landlord is never easy. Whether negotiating a termination agreement, rent abatement amendment or seeking a judgment, you may need legal help. The Miller Law Firm P.A. is ready to assist you with any of your commercial leasing needs.   

Brian Miller is an attorney with The Miller Law Firm, P.A. and is licensed to practice law in both North and South Carolina.  Mr. Miller handles corporate and small business law for The Miller Law Firm, P.A. and also serves as an outside corporate counsel to local corporations who need legal services provided in the most cost-effective manner.  You may contact Mr. Miller directly at [email protected].  

 

 

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