Rent Deferral Agreements for Defaulted Commercial Leases: Pre-Negotiation, Risk of Insolvency, Landlord Due Diligence

Recording of a 90-minute premium CLE webinar with Q&A

Conducted on Tuesday, August 11, 2020

Recorded event now available

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Program Materials

For landlord and tenant counsel, our panel will discuss factors to consider when negotiating a commercial tenant rent relief agreement. When beginning the process of potential rent relief, landlords will want to consider their cash flow and financing arrangements and whether third party consent is necessary, as well as whether rent relief would affect the landlord's ability to pursue insurance claims or governmental bailout and other relief. Likewise, tenants must work closely with landlords and counsel to structure deals in a way tied to the tenant's current and anticipated financial reality.

Description

As the economy continues to struggle, commercial landlords and tenants are left trying to save their leases while mitigating pandemic-related harm. A well crafted rent relief agreement requires balancing potential liabilities for both sides to provide tenants with leverage to remain in their spaces and landlords with assurances that tenants will eventually be able to pay rent.

Counsel's pre-negotiations often start with the tenant's written request for a rent relief, clarity about the landlord's expectations of information from the tenant, the potential amount and period of rent relief, and provisions for a finalized rent relief agreement.

The landlord must develop its due diligence plan to evaluate and determine whether, how much, and how long to provide rent relief. The landlord should thoroughly review the tenant's financials and assess the risk of default or insolvency. Landlords can then balance these considerations against their potential cash flow and responsibilities to any applicable lenders and investors.

Tenants will have to weigh the options in a landlord's rent relief offer and the probability that the tenant’s business will survive. In these negotiations, tenants and their counsel must compare the risk of accepting a landlord's offer with the potential additional obligations the landlord will often package with it, such as demands for personal guaranties or relinquishment of security deposits.

Listen as our expert panel provides the advantages and risks to landlord and tenant counsel when entering a rent deferral agreement and best practices to develop a plan and lease modification that would be considered successful by all parties.

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Outline

  1. Rent deferral agreements and rent relief generally
  2. Landlord concerns
    1. Tenant written request
    2. Pre-negotiation agreement
    3. Landlord cash flow/financial situation
  3. Tenant concerns
    1. Security deposit release
    2. Personal guaranty
  4. Best practices and tips

Benefits

The panel will review these and other key issues:

  • What should be included in a pre-negotiation agreement after a rent relief request is received?
  • What data is most useful for a landlord in evaluating the risk of future default or insolvency before agreeing to a deferral?
  • When should a tenant consider releasing a security deposit or providing a personal guaranty?
  • What is the legal framework the landlord and tenant may be required to negotiate under, such as eviction moratoriums and other COVID-19 related law?

Faculty

Sobhani, Casey
Casey Sobhani
Partner
DLA Piper

Mr. Sobhani focuses on real estate transactions, and is the head of the firm's leasing practice in the United...  |  Read More

Zahner, Adrianne
Adrianne K. Zahner
Attorney
DLA Piper

Ms. Zahner engages in a general real estate practice, including the acquisition, disposition and financing of...  |  Read More

Osmond, Stacy
Stacy Ann Osmond
Attorney
DLA Piper

Ms. Osmond concentrates her practice in the areas of joint venture and real estate investment, leasing, real estate...  |  Read More

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