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Negotiating with Landlords for Business Debt Relief

When a business hits hard times, every expense is scrutinized – and the rent can quickly become a massive burden. So, what do you do if your company is struggling to make rent payments? Negotiating with your landlord for debt relief could be the answer – but it takes skill to strike the right deal.

Do Your Homework First

Before approaching your landlord, get intimate with the terms of your commercial lease. Scour that dense legalese for:

  • Termination clauses that allow you to exit early
  • Rent increase schedules that indicate upcoming bumps
  • Personal guarantee language binding you to payments

Understanding what’s actually in your lease, line by line, gives you more leverage in debt negotiations. An experienced real estate attorney can decipher that tortuous text and bolster your position.

What if You’re in Default Already?

Let’s face it: most businesses drowning in red ink have already missed rent payments. If your landlord issues a notice of default, that’s your shot across the bow to negotiate revised terms, stat.

Defaulting triggers legal penalties and fees – so you must respond immediately. Ignoring the landlord’s demands only further erodes your bargaining power. Instead, ask for a formal forbearance agreement to pause any enforcement while you hash out new terms.

Your Landlord’s Motivation to Deal

Finding a new commercial tenant is a nightmare for landlords. There’s the cost of renovating the space, paying brokers hefty finder’s fees, and fronting months of downtime without rent checks. Savvy landlords know it’s cheaper to renegotiate and keep you as a paying tenant.

Use this fact as leverage: your continued occupancy, even at reduced rent, is more profitable than kicking you out.

See also  Massachusetts Business Debt Settlement Lawyers

Offer to renew your commitment long-term at a lower base rent, or ask for:

  • Temporary rent abatement for several months
  • A permanent reduction in rent until your sales rebound
  • Converting to paying percentage rent based on revenues

Just be prepared to prove to the landlord, in detail, the EXACT financial straits leaving you unable to afford the current rent.

How Low Can You Go?

In negotiating rent concessions, how far can you push? There’s no one-size-fits-all answer, but courts generally approve rent reductions keeping the landlord’s profits above 10% of the property’s value. Anything lower could legally constitute a “cramdown” that gives the landlord grounds to evict you. Get your attorney’s advice on prevailing legal interpretations.

Offering Security to Sweeten the Deal

Landlords want guaranteed income above all else. So offer additional security deposits, personal guarantees, or collateralizing business assets to seal a more favorable rent deal.

The more security you provide, the more likely your landlord agrees to rent reductions or a longer rent holiday. But review these options carefully with your lawyer, as putting up personal assets like homes adds serious risk if your business ultimately fails.

The Scorched Earth Option

What if the landlord refuses to budge, leaving you headed for bankruptcy court? As a final “scorched earth” option, you may be able to reject the existing lease and renegotiate as part of bankruptcy proceedings. But bankruptcy’s steep costs and damage to your credit make it an absolute last resort.

The complex give-and-take of landlord-tenant negotiations requires impressive foresight and legal maneuvering. Missteps can cost you dearly. For rent relief tailored to YOUR situation, work with an experienced debt restructuring attorney from day one.

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