Rental Relief--Necessary Evil or Delaying the Inevitable?

[IMGCAP(1)]ORANGE COUNTY-Given the economic conditions everyone is currently experiencing, a question that continually arises in the industry from tenants is “How do I get my rent reduced,” or from landlords: “Should I agree to reduce my tenant’s rent?” And when rent is typically one of the highest expenses as associated with running a business, more and more tenants are requesting a rent reduction from their landlord. However, under what circumstances does a rent reduction make sense to both the tenant and the landlord? Brad Nielsen, a partner in the office of the law firm of Allen Matkins Leck Gamble Mallory & Natsis LLP, and Randolph Mason, a senior vice president and one of the partners of Lee & Associates—Irvine Inc., take a look a this question in the article below, and explore compromises they currently see in the marketplace.

Landlord’s View:

One might ask, “Why would a landlord ever reduce its tenant’s rental obligation when there is a valid and enforceable lease contract in place?” The bottom line is: if a tenant goes out of business in this economy, it’s possible in many markets that the tenant’s space will sit vacant for many months. In this scenario, the landlord will neither be receiving base rent nor will they receive a reimbursement of any of the property’s operating expenses from the tenant, such as taxes, insurance, maintenance, landscaping, etc. For this reason alone, some landlords are willing to work with the tenant and agree upon a rental amount that tenant’s business can sustain during the short term.