Rent relief may be structured as a deferment or forgiveness and may be conditioned upon the tenant paying all or a portion of past-due amounts and remaining in good standing. Or, it can be structured as a mere forbearance of landlord's remedies with respect to the original rent obligation as long as the tenant complies with a modified rent obligation.

Other restructuring tools to consider include:

• Temporary conversion to percentage rent only or a change in percentage-rent terms (rate and breakpoint).
• In the case of a new project, a right to open later, and in the case of existing projects, scaled back operating hours. This allows the tenant to reduce overall overhead expenses.
• Reduction of or a cap on CAM Expenses or additional rent charges.
• Adding a confidentiality provision. A well-drafted confidentiality provision should provide that its breach is not only a lease default, but also results in rescission of the restructured terms. Confidentiality is important because the landlord may not want to treat all tenants equally.
• Obtaining a stipulated judgment. Depending on the jurisdiction, the landlord may be able to shorten the judicial process to recover possession and/or monetary damages for breach of the lease by obtaining a stipulated judgment as part of its consideration in granting relief. While the landlord still must prepare and file an unlawful-detainer complaint, a stipulated judgment may shorten the applicable time between filing, judgment and eventual enforcement.
• Adding an estoppel provision and/or a release. If possible, a lease-workout amendment should include a release of landlord liabilities with respect to the matters pre-dating the amendment and/or estoppel statements regarding no prior landlord defaults.
• Deleting or modifying exclusives use and co-tenancy provisions and an ongoing termination right for the landlord's benefit. Also consider adding a relocation right that allows the landlord flexibility to “mothball” all vacant space in one portion of the center.
• Asking for additional security enhancements. Although a particular challenge given a financially constrained tenant, landlords should at least explore the possibility of additional security, including letters of credit, personal guaranty and/or a lien on the tenant's personal property.

  Sean Southard
  

GlobeSt.com: How can landlords best position themselves?

Schiffman and Southard: It is important to note that a retail landlord is at considerable risk when things go south—even for one tenant. For example, when faced with the loss of an anchor tenant, the landlord may have a difficult time finding appropriate replacement tenants. Losing a major tenant can also have a domino effect on a center, often resulting in various co-tenancy issues.

With this in mind, the landlord must have a solid grasp of market conditions and the rental value of the specific premises, as well as understand the tenant's rights and the remedies available under the lease. Other considerations when a tenant asks for rent relief: What are the tenant's occupancy costs as a percentage of sales? How important are the premises to the operation of the business?

The landlord also needs to take into consideration factors such as co-tenancy clauses, tenant mix and the consequences that vacant space has on the overall value of the project. Co-tenancy clauses combined with the chain reaction that store closures can have on surrounding businesses can result in disaster for the landlord and its lender. However, the landlord must also be aware of the potential impacts that restructuring may have on its ability to meet its own debt-service obligations and, before striking a deal with a tenant, should confirm the financial covenants, loan-extension requirements and lender-consent requirements.

• Develop uniform procedures for evaluating tenant requests for relief. Consider forming an internal committee comprising leasing agents, property managers and financial analysts. The committee's job is to evaluate the tenant's request for rent relief by, among other things, requesting and assessing the tenant's business and financial plans and sales statements. Often, when faced with such an information requirement, a tenant without a bona fide need for relief will drop it.
• If relief is warranted, take a comprehensive approach to the type and terms of the relief as opposed to negotiating piecemeal deals. The landlord will find it efficient to develop a standard protocol to deal with similarly situated tenants.
• Consider coupling the relief with additional landlord rights under the lease. Restructuring is an opportunity for the landlord to address or re-address important non-economic lease terms that may improve the landlord's ability to manage the center during this crisis. Examples include adding a relocation provision, extending the term, reclaiming signage rights that can be used for replacement tenants, reducing the scope of exclusive-use protections that may hamstring the landlord's ability to backfill space, eliminating or modifying co-tenancy clauses and imposing new requirements to provide the landlord with sales and financial information.
• Consider shorting the duration of relief. Keep the period of relief short and, if significant relief is being given, consider requiring the tenant to agree to an ongoing at-will right of landlord to terminate the lease.

GlobeSt.com: What are some key considerations for tenants?

Schiffman and Southard: Like the landlord, the tenant, too. should have complete knowledge of the market value of the premises, as well as specifics of its lease terms, from rent escalations to the landlord's obligations. The tenant should also have a good handle on its financial situation and be able to demonstrate to the landlord that while it may be facing financial challenges, there is ultimately potential for growth. Other issues to take into consideration: Is the tenant foregoing the chance to relocate to superior premises or center (location quality, market, expansion opportunities)? Is it possible that the tenant may be able to negotiate an even better deal by postponing its request for relief? Would the tenant benefit from negotiating a payment to the landlord in exchange for termination of the lease? Other factors to take into account:

• Make rent relief the last step. Expect to demonstrate that the tenant has taken all other survival measures before approaching the landlord.
• Expect to provide all documentation supporting the request for relief. Be prepared to provide financial and sales data backing up the rent relief request. Tenants seeking to survive this current cycle and re-emerge as a viable business must be prepared to justify their requests for rent relief as part of their overall short term plan for survival. Landlords are requiring a high level of transparency.
• Information on other locations. A multi-location tenant should provide the landlord with sufficient information regarding its rent-relief efforts at other locations to assure the landlord that such other locations are not affecting its long-term viability and that the rent under other critical leases is also being addressed.
• Utilize third party services. Because the justification for rent relief requires detailed market studies and financial justification, tenants may find it helpful to work with an outside consultant or broker specializing in restructuring leases. In addition, using a third party to negotiate the relief can help preserve the tenant's working relationship with the landlord.

Lease workouts may seem like a thing of the past, but as all veterans of past cycles know, it is just a matter of time before what is old becomes new again. With that in mind, it is only prudent to be looking and preparing for what is down the road.