To Abandon your Lease or Not To Abandon your Lease

An attorney friend -- who I frequently hack golf balls with -- has a dilemma.

The office he leases is in an office park that was recently taken back by the bank.  And, out of the 12 office buildings in the park, he is leasing +/-4,500 SF in the largest (+/-40,000 SF) building.  AND, he is one of three remaining tenants in the building.  He is paying about $2.00 NNN per SF per month.

Recently, several medical offices closed, a bank moved out, a financial services company closed and there seems to be No Tenants on the horizon.  Walking to and from his office sounds as if the entire building is vacant.  I can honestly tell you that there is at least 70% vacancy there if not more.

But, here is his rub: He met with the "new" property managers (PM) and a "bank representative. (BR)"  During the meeting, he expressed his desire to reduce his rent by at least half to a $1.00 per SF per month.  The PM said that he would have to supply three years taxes to see if he qualified for a temporary rent reduction.  He said he laught at the response.  The PM defend it's position saying that that was the norm for any tenant requesting relief on lease payments.

The attorney asked if they know of any of the other landlords going to tenants and offerring to reduce their lease rates just to have the tenants stay.  Of course, the PM had never heard of that.  (This PM manages about 95 properties in and around the Las Vegas Valley.)

Now, full disclosure: I had told the attorney that many landlords in the Las Vegas Valley are offerring reduced rents to tenants in an effort to get them to stay.  Many tenants are seeing competing properties with offerred rents lower than the tenants are paying.  And even these are NOT being leased up.  So, tenants are seeing blood. 

I have talked to tenants that they have asked for a reduction from their landlords.  They tell me if their landlord refuses, they move out and rent at the proeprty offerring the lower rents.  (Remember, this is a calculated risk for the tenant because, if you have a performance clause or a guarantee in your lease, the landlord can sue for damages. (Contact your attorney for legal advise prior to making any decisions.))

Now, my wife's company was giving back several suites of SF to her landlord because she had to downsize.  Her landlord surprised here by personally going to her office and asked her to stay saying he would do a "new" lease if she agreed to stay at least two years at HALF the rent she was paying.  And, other landlords are doing this -- regardless of what the PM is saying.

Now, if you are in a lease with a performance clause or personal guarantee, you are in a trickier situation.  My wife did NOT have either so she could have left and the landlord could have sued, but you can NOT get blood from a stone.  Especially, if she bankrupt her company, and formed a new company at the new location.

Now, I am NOT saying you should walk out on your lease.  What I am saying is that Landlords should reduce rent for tenants that are still in business after two years of this recession.  Continuing to squeeze high rents from tenants is bad business -- even if they are holding valid leases.

It's NOT much to ask.  Since banks own a lot of these properties.  And, competing RE Brokers are telling banks what they want to hear -- as the PM above -- just so they get the business.  The bank either made the bad loans in the first place or bought them from Wall Street; and they have received at least 65% or both the Bush and Obama stimulus packages.  So, you can NOT tell me they are NOT in a position to provide more help than they are.

For Information about Las Vegas Commercial Investment Property, contact David Howes at:

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