Tenant defaults on 5yr lease in 3 months

[Nitin Dhiman]

Hello commercial RE owners,

I have a business tenant that signed a 5 yr lease a couple months ago. The business has few other locations and they decided to shut down one location (the one in my building) just 2 months into the lease! According to the lease, a tenant that defaults will owe all rent due till the end of the lease term. I'm trying to figure out the best course of action.

Going by the letter of the law, I should be able to go after the business for the remaining 58 months of rent. Is this what most of you (commercial RE owners) would do? Hire an attorney and pursue full payment? Or would you strike a deal to have the business pay the rent (and leasing costs) until a new tenant is found?

Thanks.

Nitin

[Joel Owens]

Nitin,

WHO is the tenant? You mention they own several businesses. Regardless of what the lease says the personal guarantees will make a difference.

Often multi unit operators will have separate remote entity LLC's so if they want to shut down one location they can bankrupt it and keep the other businesses going.

If you do not have a unlimited personal guarantee on the lease you might be out of luck. If you have a personal guarantee then do you have ongoing financial reporting required per the lease? If so you need to see if net worth and liquidity is something you can go after. If for instance net worth of guarantor personally is 300k but almost all of it is in retirement type accounts then you generally cannot touch it so is useless to go after.

When a tenant defaults the goal is to typically get estimate lost rent until a tenant is found, anticipated leasing commissions for the new tenant, and estimate TI per sq ft, and your attorney legal fees in negotiating the settlement with the former tenant. The goal is to be a ZERO out of pocket getting the new tenant in and having the old non-performing tenant pay for it.

I do not know what type of lease you used. Hopefully you have a great one and not one of those cheap contracts.

No legal advice given.