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In lease disputes, negotiating may beat litigation.

Despite various signs that the store and 'office rental market are beginning to rebound in limited areas, no sustained overall improvement is yet observable in our current economy. Commercial tenants continue to go out of business in record numbers and even the highest profile firms bargain for significant rent. reduction relief to stay in place or renew leases.

It is essential that commercial building owners, striving to retain their property and maximize their bottom-line income, be sensitive to the marketplace, flexible in their attitudes and creative in their responses. Calling a litigation attorney to immediately commence suit against the tenant whose rent is in arrears is, most often, not the first thing to do.

Every seasoned commercial building owner is aware of the costs associated with Vacancy: lost rental income, tenant improvements, brokerage fees, advertising expenses, free rent allowances to new tenants and the legal fees incurred in the negotiation and drafting of a new lease. When faced with a plea for a rent reduction from an existing tenant already in place, it is necessary to factor these items into the equation and also to form a realistic view of the value of the premises in today's market. In many situations, a temporary rent abatement or rent deferral may help-an ailing tenant through bad times. A cursory knowledge of your tenants' business and the field in which your tenant is completing will aid you in determining whether a particular tenant might be saved with interim relief. Like it or not, a commercial building owner is the partner of every tenant he has. Accordingly, shifting a rental obligation from twelve equal annual payments to payments that rise and fall as the marketplace ebbs and flows may go a long way toward solving any problem the tenant is experiencing.

In times such as these, even the value of a personal guarantee of lease obligations is not to be overvalued. All that a personal guarantee entitles the commercial building owner to is a judgement that may or not be ultimately collectible against an individual business owner who has presumably spent all available funds attempting to prop up his own failing enterprise.

If your efforts at amicable negotiation fail, or equally important, if you are successful in negotiating a modification to an existing lease, resort should then be had to an able real estate litigator, whether it be to enforce your rights or to memorialize your modification agreement in the form of a Court-Ordered lease modification. Just as 'good fences make good neighbors,' a good litigation attorney can tend to the details which will make your modification agreement enforceable and provide you with the maximum amount of relief in the event of a subsequent default by your tenant.

When You Must Litigate

Should you reach the point where all pre-litigation strategies have been exhausted, it is essential that aggressive steps be taken to commence non-payment summary proceedings in the commercial non-housing part of the Civil Court. This is accomplished by first serving a formal, written Notice of Non-Payment and Demand for Rent pursuant to whatever the lease terms require. The notice should be served by a licensed process server. As soon as the Notice period is exhausted, usually either five or 10 days), a Notice of Petition and Petition should be prepared and immediately served upon the tenant. The Petition should demand any and all current rents due, additional rents, and legal fees as may be called for in the respective Lease.

Once the tenant answers, the goal of the building owner should be to move a case as swiftly as possible to a settlement or trial. An aggressive posture of fighting off the usual delays in a commercial part regarding adjournments, applications and motions, is crucial to bringing a case to the point where it is assigned to a judge and ready to be tried. A building owner may even wise to avoid the delays normally associated with his own legitimate motion practice by, for example, deciding not to seek the severing of counterclaims which he is confident of defeating at trial.

Of course, it is at this time when most cases should be and are settled pursuant to written Stipulations. It is essential that those Stipulations be artfully drafted, keeping in mind that any and all devices possible to safeguard the interests of the building owner; full payment of rent; and the lack of further delays; be utilized.

It is preferable that Stipulations of Settlement include Final Judgements of both money owed and possession of the premises; immediate issuance of the Warrant of Eviction; and the stay of any execution upon that Warrant pursuant to the terms of an agreed upon payment plan.

It is also important to provide that no further stays, applications, appeals, or requests for delays should be made by the tenant or entertained by the Court. It is helpful in the collection of any current rents or post-Stipulation rents to provide for the timely payment of same, and also to provide that any sums received after the Stipulation be applied first toward current rents due, with any monies paid thereafter applied to the judgment amount. This will enable a building owner to continue to enforce a timely payment of current rents throughout the duration of the Stipulation. Temporary and permanent lease modifications agreed to by the building owner should be made contingent upon full and complete with the modified lease terms over the remainder of the tenant's occupancy.

Throughout the negotiation process, it is also in the building owners best interest to ensure that the tenant is not making an agreement that they cannot honor. Instead, explore possibilities with as much assurance as possible that the agreed upon terms can be timely met and realistically realized by the tenant.

Many of the above suggestions can be helpful to landlords of commercial premises in the collection of rents from both Office and Store tenants. Proactive steps prior to litigation can often avoid lengthy and costly court battles. A good litigation attorney can then be used instead to assure that you receive the benefit of your new bargain. Remember that a Lease modified to reflect current market conditions is often the key to assuring that the premises will generate the best, overall bottom line and will remain a viable, ongoing source of income. If negotiation fails and litigation is unavoidable, aggressive strategies and practices will very often lead to speedy resolution, most advantageous to the building owner.
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:Mid-Year Review & Forecast, Section V; commercial building leases
Author:Rosenberg, Lindsay J.
Publication:Real Estate Weekly
Article Type:Column
Date:Jun 23, 1993
Previous Article:Agent loyalty key in all market climates.
Next Article:'94 to herald retail breakthrough.

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