Leases in todays' economy: Our current market presents challenges for both tenants and landlords

The recent rough economic times have presented a challenge, to say the least, for both tenants and their landlords. It has also created a lot of activity in landlord/tenant court. Tenants have seen huge and sudden drops in their revenue, which has resulted in a huge loss of revenue for landlords. There is also a domino effect of shortfalls and cutbacks in many other areas. If business is down, then there is less need for their large offices and retail spaces and there is less income to keep it all afloat. There is less need for employees to staff those spaces and all the related consultants and suppliers who service them are also adversely affected. Unless you have a recession-proof business, now is a good time to dust off your lease and have a real estate attorney look at the pertinent provisions and understand where you stand going forward. Lately I have been doing just that for clients. Obviously the requirement for paying rent under the lease is a rather basic and cut and dry proposition. However, there are other issues, such as personal guarantees and possible personal liability, related to this issue, which some business owners may have either not considered or may have forgotten about. There may even be guarantees from individuals who are no longer involved in the business. You should be fully apprised of these things, especially if you have any thoughts that you may not make it through these temporary hard economic times. I have also been reviewing leases looking for the assignment and sublet provisions, as well as litigating some which have gone to the next level. Landlords and building owners seeing the economic realities are faced with tough decisions. If a tenant cannot pay their rent because of the economy, they can either strictly enforce the terms of the lease and exercise their legal remedies and begin summary proceedings to evict tenants and undertenants or they can try to "work something out," since these delinquencies are not isolated instances, but rather are happening to many, many businesses on a grand scale all at the same time. However, landlords also know that formal eviction may mean winning the battle, but losing the war. The landlord can pursue a non-payment proceeding and obtain a large judgment, but they may wind up with an empty space with no prospect of a new tenant and more rent for a long time to come. There may also be little likelihood of collecting on the judgment and landlords may have judgments and guarantees to go after for dozens and dozens of tenants. In other words, nobody wins. Instead, some landlords seem to be trying to "work something out," with otherwise good tenants, which is short of eviction. What can be done, if anything, varies from landlord to landlord. Obviously no landlord wants a tenant to take advantage of the situation. However, some landlords are discussing with tenants the idea of cutting the amount of rent due for a period of time, such as six to eight months, to give the tenant some breathing space and then are requiring that it be paid back at a future date, along with rent due at that time. Included in these conversations will be amounts to be paid for legal fees and other expenses. All of this is reduced to writing in a settlement agreement, which often also allows the landlord to get a warrant of eviction if things do not work out, but stays that warrant in the meantime. I have successfully negotiated a number of such agreements recently. While it is only a stop gap remedy, it is better than the alternative and keeps people in business until the economy turns around. C. Jaye Berger, Esq., is the principal at Law Offices C. Jaye Berger, Manhattan, N.Y.