Tenants Get Inventive as They Look to Exit a Lease

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Tenants Get Creative as They Look to Exit a Lease

If a landlord believes a tenant can survive after the COVID economic crisis has ended, they are usually motivated to work on payment plans, according to Luis Martinez-Monfort, founding partner of the law firm Gardner Brewer Martinez-Monfort.

"The appetite to overcome the indulgence of both the tenant and the landlord is quite great as I don't believe that, depending on the type of tenant, landlords believe that there is someone who will immediately fill a room," says Martinez- Monfort.

In a stable economy, according to Martinez-Monfort, there may be several groups who would like to try out their business concept in your restaurant. That doesn't happen during COVID. "I don't know if there are many restaurant concepts knocking on the door behind a tenant who has failed," he says. "There aren't many people who want to open a restaurant right now."

If they believe their tenant has a chance, according to Martinez-Monfort, landlords postpone payments until the end of a lease or spread them over the entire lease. "They're developing late payment methods to fix this tenant's insolvency," he says

In the absence of a structured forbearance agreement, tenants look for other exits, including buying from their lease. According to Martinez-Monfort, this is usually only a solution if bankruptcy is not a viable option for them.

"I think you see a lot of landlords and tenants working on it [a hire purchase]," says Martinez-Monfort. "The landlord says," Pay me what you can, we'll sign the lease and I'll try to find a new tenant. "This happens more often [than usual]. Normally you wouldn't see much of it. But I think you will see more of it."

For many smaller businesses, this is a viable option. According to Martinez-Monfort, most small mom and pop stores won't file for bankruptcy. They just tell the landlord that they can't pay.

"You will not normally go bankrupt because there is no benefit," says Martinez-Monfort. “You can try to give your best across the board with a judgment, or you can try to find an amicable solution with the landlord [against partial payment]. So you can close this chapter. "

Unfortunately, Martinez-Monfort predicts many of these situations in the years to come. "I think you will see a lot of this in little disputes between landlords and tenants," he says. "These small businesses will always be the ones that suffer the most."

After their PPP loans expire, Martinez-Monfort sees lots of mom and pop shops looking for creative ways to get out of their leases.

"Some of these problems [tenant problems] have been suppressed because tenants can pay when they use their PPP funds," he says. "The PPP funds have artificially stabilized the market to a certain extent."

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