Vacant Space

Samuel Jones's Profile

 

In business, as we do in life, most all of us strive to do the right thing and help those in need. The difference is that in business there are usually economic motives and consequences to our actions.

Take for example a computer software company who deploys contract professionals to fill the need for programmers under contracted work. As business grew, there was a need for greater space to house personnel. The company’s Landlord was happy to accommodate the need and modified the company’s lease to reflect the additional space. The fate of the company took a turn; contracts were lost or not extended. As the demand for the company’s services dwindled, the need for the office space also decreased.

The company approaches ownership, asking for relief under the terms of their lease, stating that if relief is not granted, their business will fail. The company has reduced every expense possible but still finds itself in a negative cash flow.

The dilemma is that if failure is indeed imminent, ownership will be faced with a much larger issues as well.

After an analysis of the financial condition of the company and verification of the facts, relief is granted. By amending the lease through modifying the monthly rent payments, the rent payments were brought to a manageable level. The reduction was accomplished through forbearance. The reduction was applied on the back end of the lease term. Thus, the economics of the entire lease are somewhat preserved; the space remains occupied avoiding downtime and remarketing of the space; costly legal action is avoided that would result from a lease default; and, the tenant is given the required relief to assist the company in their restructure plans, with the hope they will survive and the forborne rent will be recaptured at the end.

Fast forward to the end of the lease term…. The company has survived; the first thing they do is to engage a tenant rep broker to shop the market for new space. The concessions, the conciliatory spirit, and accommodations have long been forgotten. If relief had not been granted though, the company may have failed.

Although there may have been ulterior motives to ownership’s decision, they could easily have said “Read the Lease” and not grant the forbearance. They had every right to do so. However they chose to work with the tenant and through their “Good Deed” the company found the relief they needed to survive.

Remain objective and unemotional. Remember, it is just business. Each party took the correct action to meet their needs.

If a space is vacant, every month of rent lost is money that will never be received.

To learn more, check out Sam's course Corporate Real Estate Leases: Analysis of Key Business Elements.

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Author Sam Jones is an experienced finance executive responsible for multiple real estate properties throughout North America, who authored a text book on Real Estate Finance and was certified as an instructor by the PA Real Estate Commission.