Market Notes Vol. 5

Nov 5, 2016

Landlord Financial Strength & Stability Becoming Increasingly Important To Tenants And Their Brokers

While Landlord’s have historically underwritten their investment in lease transactions by thoroughly checking the credit of their Tenants carefully, Tenants have seldom needed to exercise the same degree of caution and due diligence in evaluating their Landlord. Due to a credit crisis, tighter lending standards, as well as a deterioration in commercial property values, this practice may change!

Most commercial leases involve a variety of transaction costs which may include tenant improvement allowances, leasing commissions, rental concessions or a credit for relocation costs. In most leases all goes well so long as the Tenant pays its rent and the Landlord maintains the property. However, what if the Landlord is in financial difficulty and unable to fund the agreed upon tenant improvements?

Who will pay for them? Who will ensure the property is properly maintained throughout the lease? What rights do Tenants have if the property falls into receivership or is foreclosed upon?

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