Useful tips for landlords trying to stay ahead in the current economy. Includes information on contract terms, rent, and abatements.

1. Renegotiating a Commercial Lease in
Today’s Market
Landlords and their Struggling Tenants
By Caroline Z. Worley and Julie K. Phillips
Today’s recession means that tenants are struggling to survive. To that end, many
tenants are seeking to renegotiate their leases as a means to further cut costs.
However, landlords are under increasing pressure to protect their rents and maintain
occupancy in properties due to impending mortgage payments, property taxes,
insurance and other carrying costs. Each party should take steps to protect themselves
now and in the future. The landlord and tenant should be prepared with information
on current market conditions and the state of the tenant’s business before entering
into renegotiations. Both parties should be interested in the current financial state of
the tenant’s business, what cutbacks and cost savings have already been implemented,
and how much more needs to be cut to survive the current economy. A review of
these factors will lead to an effective negotiation between the parties.
Landlords can offer several devices to relieve current economic pressures on
Tenants:
1. Rent abatement up to six months, which is added to the end of the lease as a lump
sum or amortized over last year of the lease.
2. A reduction in monthly rent amounts.
3. Permitting a temporary change in the base year for operating expenses / utilities or
a landlord credit towards utilities for the current year.
4. A Temporary abatement in common area charges.
5. Additional signage or extra parking free of charge to assist in attracting new or
more customers/clients.
6. Performing repairs or improvements to the premises to make them more inviting to
customer/clients, including landscaping.
7. Constructing additional tenant improvements to update the current business
location.
8. Permitting the tenant to sublet a portion or the entire unit with approval.
As an overall device, Landlords should consider investing in going “green” to retain
current tenants and attract future ones. Going green is a current trend of protecting
the environment, but it also involves making a building efficient in use of utilities. A
highly efficient building can make the difference for tenants in determining what they

2. can afford to pay in rent. In return for rent abatement or a permanent reduction of
rent, landlords would be wise to ask for a few things of the tenant:
1. Longer/extended rent term tied to CPI Index, or step-up every year in rent
2. Waivers of first rights of refusal, options to expand/purchase, and exclusive use
provisions
3. Relocation clause (especially if permanent reduction in rent).
4. Unilateral renegotiation rights for landlord in five years.
5. Waiver of co-tenancy requirements.
6. Personal guarantees on part of tenant and/or tenant’s parent company.
7. Estoppel certificate waiving any landlord defaults.
8. Forfeiture of any early termination right.
Alternatively, for struggling tenants, this is the time to seek renegotiation with the
Landlord. Before approaching this process, tenants should ensure their financial
house is in order – needed cuts and staff reductions have been made, and the
business is “lean and mean.” Tenants will need to demonstrate this to the Landlord. In
addition to the devices listed above for Landlords, Tenants should attempt to seek:
1. Short term, low rent lease.
2. Contraction option to reduce space if needed.
3. Expanding use clauses.
4. Increase flexibility in assignment and subletting clauses.
5. Cancellation right with minimum penalty.
Many landlords and tenants do not have the in-house staff or lease administration
resources in this environment to undertake a wholesale lease renegotiation strategy.
Landlords may be reluctant to expend precious resources on a previously negotiated
lease. Tenants may be reluctant to have third parties contacting their landlords.
However, using the correct professionals provides a key benefit to both parties.
Professionals can protect the landlord’s revenue stream and prepare it for future
growth for any stage of economy. For tenants, professionals can operate as an
extension of the tenant’s resources while insulating the company from a pushback
from the landlord.
Both landlord and tenant should retain seasoned professionals who understand
the business of the client, its position in the marketplace, its real estate strategy, and
have the ability to renegotiate not only the economic provisions of the lease, but
undertake the proper documentation of the amendments.

3. Caroline Z. Worley and Julie K. Phillips are small business attorneys who represents owners, investors,
and entrepreneurs in all aspects of commercial, corporate, and business law, contracts and
negotiations, business litigation, and real estate. They are co-counsels for Worley Law, LLC, located in
Columbus, Ohio.