With the increase in vacant office space due to commercial tenants defaulting on their rent and/or filing for bankruptcy, landlords need to be aware of how to keep existing tenants while remaining in the black.
Based on the problems in the nation’s economy, some commercial tenants are asking for a rent reduction in exchange for an early lease renewal. Before making this accommodation, landlords should request a copy of the tenant’s financial records to be sure that there is actually a problem and not merely a desire from a financially sound tenant for a reduction due to the overall economy.
When entering into a lease agreement with a new tenant or renewing with an existing tenant, landlords should keep lease terms short and not commit for more than three years. Eventually, the market will improve and making renewal options fewer and for shorter periods of time will help landlords to recoup their losses.
Giving each tenant one month’s free rent per year instead of rent reduction may help to stabilize rates of rental when the market begins its recovery. Spread the free months out among all tenants so that there is not one month when rent is not paid. Consider a provision in the lease so that if a tenant defaults, the free month will be added back when totaling damages.
Another possibility for landlords when granting a reduction in rent is to ask for collateral such as personal guarantees of the tenant’s owners or guarantee of the parent corporation.