abatement and a year of reduced rent
agreeable to allow the tenant to continue
operating and producing cash flow for the
center. The parties shake hands on the
deal and the landlord gives the tenant
free rent for four months and then begins
accepting lower rent.
After a year, the tenant returns and
tells the landlord that it still is having
cash flow problems and simply cannot
start paying full rent and an additional
amortized payment to repay the
reduced/unpaid amounts as well. In the
meantime, landlord is halfway through
negotiations to expand the center and
that this tenant pay off all of the past due
amounts immediately and start paying
full rent or the loan will not be approved.
The landlord demands the tenant honor
its agreement. The tenant refuses and
says its lawyer has advised that the
landlord has "waived" the requirement of
payment of the full contract rent and the
payment of past due amounts. When the
landlord reiterates its demand, the tenant
responds that it has no other choice but
to shut its doors in two months.
Could this situation have been
prevented? Maybe and maybe not...
The common law and/or statutes in most
states provide that long term acceptance
a party can result in a legal waiver
or estoppel preventing the party from
enforcing the original terms of the lease.
In extreme cases, this can also result in
a permanent change to such terms for
the remainder of the term. However, in
many states, courts have upheld the right
of commercial parties to enforce anti-
waiver provisions that would preserve the
original contract terms at the end of the
abatement/reduced rent period. So, how
could the landlord protect itself in the
situation described above?
Measures
address all of the problems that arose in
this example, but here are a few thoughts
on what the parties could have done:
as robust remedies for tenant default;
of agreement into a written lease
amendment, including a clear
recitation that the original contract
terms will remain in full force
and effect;
insure performance including one
or more of the following: a) cross-
corporate or personal guaranties;
b) perfected security interest in
favor of the landlord in tenant's trade
fixtures, equipment, accounts etc;
and c) letter of credit for the total
amount of free and reduced rent plus
any past due amounts as of the time
of the agreement.
during the abatement/reduced rent
period. The first indication that the
tenant is not back on track should
not be an email from the tenant in
response to a demand for proper
performance.