How Should a Landlord Respond When a Commercial Tenant is Facing Financial Distress?
Recently, The Real Deal, a prominent South Florida real estate magazine, reported on the financial struggles of mall retailers in the state. In a trend that has been seen throughout the country, traditional mall retailers are having a hard time in this economic environment. Malls are facing fierce competition from online retailers and renewed urban development
As a result, some mall retailers are attempting to renegotiate the terms of their lease, looking for more favorable terms from their landlords. This raises an important question: What should a commercial landlord do when a tenant is seemingly unable to pay? Here, our West Palm Beach landlord rights attorneys offer some general guidance on this issue.
Landlords Have No Obligation to Voluntarily Renegotiate the Terms of a Lease
First and foremost, it must be made clear that landlords are not required to renegotiate the terms of a commercial lease. Indeed, a commercial retailer is not entitled to receive a better deal on their rent, simply because their sales went down this month. Likewise, a landlord would not be able to raise the rent simply because sales were up. A commercial lease is an enforceable contract, and as such, landlords have a legal right to expect their tenants to uphold the agreed upon terms of the bargain.
If Bankruptcy Is Declared, Landlord Rights Will Be Restricted
While Florida landlords are under no duty to renegotiate, it must be noted that, should a commercial tenant file for bankruptcy protection, a landlord’s rights will be heavily restricted. In fact, through a bankruptcy, a commercial tenant may be able to escape the terms of their lease entirely. Bankruptcy provides filing businesses with extensive protections along with the ability to shed overly cumbersome contracts, including commercial leases. Once a tenant files for bankruptcy, a commercial landlord will be dealing with an entirely different legal situation.
Commercial Landlords Need to Stay Ahead of the Game
The bottom line: If your commercial tenant is facing financial distress, you need to keep a close watch on the situation. Should a tenant fall behind on the rent, landlords need to take immediate action to resolve the problem. If the issue (overdue rent) is allowed to linger, then landlords risk not being paid back at all. Renegotiation of a lease is a decision that may be advisable in certain circumstances, but ultimately, that is a business decision, and one that can only be made with a clear and comprehensive view of the facts.
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At Pike & Lustig, LLP, we have extensive experience protecting the legal rights and financial interests of commercial landlords. If you are a landlord in South Florida and you need legal help dealing with a financially distressed commercial tenant, please contact our team today to request your free case evaluation. From our main office in West Palm Beach, and our new office in Miami, we serve landlords throughout Miami-Dade County, Palm Beach County and Broward County.