Commercial Lease Restructuring and Forbearance Agreements: What to Do When Tenants Default

Description

In an unpredictable commercial real estate market where finding tenants can prove difficult, landlords and their counsel may want to consider alternatives to terminating a lease if the tenant is in default such as lease restructuring or forbearance arrangements that may be defined in a separate agreement. Whereas lease termination may seem like a viable alternative, under the circumstances other considerations such as whether other tenants are available, potential costs of building upgrades for new tenants, whether the space could be repurposed or, if not, whether the vacant space would prove detrimental to remaining businesses should be taken into account when making the decision.

As an alternative to termination, lease restructuring could include full or partial rent abatement or deferral by the landlord in exchange for certain tenant agreements. Any forbearance arrangements could be reflected in a lease amendment or may be defined in a separate agreement that technically does not amend the lease.

When deciding on enforcement alternatives, counsel should be aware of other considerations that could affect the decision such as possible tax implications, lender approval requirements, and how landlord remedies may be impacted.

Listen as our expert panel guides practitioners through landlord lease enforcement alternatives to termination. The panel will examine the pros and cons of lease restructuring and/or forbearance from the landlord and tenant perspectives and will discuss drafting considerations for lease amendments and forbearance agreements to best protect clients' interests.