Threat Of Bankruptcy Helps Tenant Renegotiate Commercial Lease
Sometimes, just telling your creditors that you’re trying to stay out of bankruptcy will open them to finding a mutually beneficial result.
One of my clients ran a fitness club that needed a large commercial space. Unfortunately, the rent escalation clause in the lease threatened to siphon off all the company’s profits and the owner would be essentially working without pay. He had no incentive to stay in that space or even keep the business alive. The landlord had given my client some relief, but was now holding a hard line that there would be no further modifications to the lease.
We met, and I explained that the business could file a corporate Chapter 11, reject the burdensome lease and move to a less expensive space. The owner would file a Chapter 7 liquidation. This strategy could solve his problem, but at a significant cost. He engaged me to contact his landlord and explain the situation.
I called the landlord, who was initially hostile. I asked him to look at my website and call me if he had any questions. I explained that my client “really wanted to stay out of bankruptcy.” At the end of that call, neither my client, the landlord nor I were particularly optimistic.
Nevertheless, the door opened to a continued dialog between my client and the landlord.Although the cost to my client of filing the Chapter 11 and moving to a new location was daunting, the prospect to the landlord was much worse. Several thousand square feet of vacant commercial space in a soft market doesn’t look good on any landlord’s income statement.
Eventually, my client and the landlord struck a new deal. My client will continue to receive a salary and grow his business. The landlord will retain a good tenant for the next ten years. No bankruptcy was filed.
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DISCLAIMER: Please note that every case is different and these verdicts and settlements, while accurate, do not represent what we may obtain for you in your case.
