For all the news on the number of residential
foreclosures over the past few years, commercial foreclosures are
quickly catching up. As counsel to both commercial property owners and
tenants as part of its real estate practice, Boston-based Tarlow Breed
Hart & Rodgers, P.C. has some insights into the why this trend is
likely to continue.
“It’s the “cause and effect” principle. A slow economy
weighs on a commercial tenant’s business which, depending on its
financial strength and the depth of the slow-down, impacts the tenant’s
ability to pay rent and perform other obligations under the lease.
Enough non-performing tenants will affect the property owner’s cash
flow, which is necessary to pay debt service. If debt service is not
being timely met, foreclosure looms,” said John Blake, a Member in
TBHR’s real estate group.
Adds Blake, “However, there are steps a commercial
property owner can take to minimize the damage a non-performing tenant
can do, but those steps require paying attention to the warning signs
and intervening before the problem escalates.
Warning signs that a tenant might be in trouble include
the obvious—non-payment of rent, checks returned for insufficient
funds—and the not so obvious— slumping sales, shorter hours or reduced
staff. In a good economy, a one-time occurrence of any of these events
may not be cause for alarm, but in the present economic environment
the foregoing occurrences merit attention.
“When a tenant falls behind on rent, the tenant may be
bracing for eviction. However the property owner’s objective is to
have the space occupied with a tenant paying rent. Exploring
alternatives with the tenant such as reducing space or temporary rent
reductions may be the better path for the property owner,” said Blake.
Some of the possible settlements for a non-performing tenant can include:
● Moving the tenant to a smaller, more affordable space within
the property, freeing up the larger space for a new tenant.
● Negotiating a lease break (e.g. tenant agrees to vacate in
30 days instead of the remaining lease term, in exchange for a
● Structuring a payment plan for a rent arrearage.
“The property owner’s best defense against
non-performing tenants is the lease itself,” said Blake. “Requesting
financials from the tenant on a periodic basis is one safeguard.
Another is to secure a tenant’s performance under the lease by pledging
collateral in addition to the security deposit (in the form of a lease
guaranty, which itself could be secured by a mortgage on a home).
Also, performing due diligence on the tenant is important, including
credit checks, lien and litigation searches. In today’s economic
climate, the property owner needs to keep their cash flow strong,
thereby minimizing their own risk of foreclosure.”
Adds Blake, “While a mutually agreeable solution
between the property owner and the tenant is generally better than
resorting to remedies under the lease, or litigation, that’s not always
possible. In those cases, the property owner does have the recourse to
begin eviction proceedings and sue for lost rent, it’s just not always
the fastest and most cost-effective means to a resolution.”
About Tarlow, Breed, Hart & Rodgers, P.C.
Formed in 1991, Tarlow, Breed, Hart & Rodgers, P.C.
is committed to providing high quality, comprehensive legal services to
its clients. Featuring a breadth and depth of experience and
perspective usually found only at larger law firms, Tarlow, Breed, Hart
& Rodgers. P.C. offers sophisticated legal counsel to
entrepreneurs, businesses, individuals, families, and institutions.
Tarlow, Breed, Hart & Rodgers’ areas of expertise
include corporate law, employment matters, mergers and acquisitions,
litigation and dispute resolution, estate planning, taxation, real
estate, bankruptcy, and municipal law.
To help clients make informed decisions and achieve
their goals, Tarlow, Breed, Hart & Rodgers P.C. develops creative
customized solutions for its clients by emphasizing careful listening
and considerate evaluation. Utilizing the expertise and collegiality of
the firm’s fifty plus members, associates, and support staff has
consistently resulted in the building of lasting relationships of trust
The offices of Tarlow, Breed, Hart & Rodgers, P.C.
are located at 101 Huntington Avenue, Prudential Center, in Boston, MA
02199. For additional information, or to arrange for a consultation,
please call 1-617-218-2000, e-mail firstname.lastname@example.org, or visit www.tbhr-law.com.