How Low Can You Go?

Tenant Scenarios

In many instances, these tenants rely on one of the following positions to persuade the landlords to come to the table:

1. The tenant has a sales “kick-out” or “early termination” clause, and the tenant is threatening to exercise this right unless the landlord agrees to a rent concession. In a 10-year term, for example, occasionally a tenant will negotiate this in the original lease as an option that arises after the fifth lease year, if the sales during the fifth lease year do not equal or exceed some minimum threshold.'
2. The lease is coming to the end of the term, and the tenant threatens not to extend the term or exercise an option to renew unless the landlord agrees to reduce the rent in the renewal option period for less than previously negotiated in the lease, or less than the rent currently being paid.
3. The tenant has other termination rights and it is threatening to exercise one of them unless the landlord reduces the rent. For example, there might be a co-tenancy breach, or exclusive use breach or right to terminate if the landlord has exercised a relocation option.'
4. The tenant has no personal liability, has signed the lease in the name of a shell entity, and there is little security deposit. In this situation, the tenant may simply threaten to default or file bankruptcy.'

Faced with these situations, landlords must decide between the lesser of two evils: making some concession to the existing tenant or accepting vacant space in a soft market.