Should You Seek to Restructure Your Lease?

A commercial lease is a binding legal document, but, in some instances, a tenant may be able to work with their landlord to restructure their lease.

Restructuring of a commercial lease may be a viable strategy in order to lower your rent, reduce/expand your square footage or even swap into another space in the same building, if available. For your landlord, the restructuring may get you to commit to staying in the building for an extended period beyond your current lease, which provides longer-term cash flow, tenant stability, and increased value of the landlord’s property.

Restructurings are by no means easy, and convincing a landlord to even discuss the possibility should begin with a consultation with a tenant representation professional who will have your best interests in mind.

Even if you desire to stay in your current building, it is important to thoroughly evaluate the market and find some lease alternatives as you won’t have any negotiating power without doing so.

Types of restructurings

Blend and extend: One of the most common restructurings is an option in which you agree to a longer lease term in exchange for a rental rate that is lower than your current rate which can provide some immediate savings. You will want to be sure that you like your current location works for the long-term needs of your company.

Space swap: If you need to decrease or expand your space, your landlord might be willing to let you swap into a different space if it is available in your building or complex. This option really depends entirely on what is — or isn’t — available, or what might be coming open in the coming year.

Lower rent: Simply asking to lower your lease rate will be difficult, but your tenant representative can advise whether to pursue this option based on what they discover in their evaluation of market conditions. If your tenant rep determines you are being overcharged based on current market conditions, it could play a role in restructuring negotiations.

Conclusions

A lease is a binding legal document and even if the economy has changed from when you signed your lease, it doesn’t mean your landlord is obligated to restructure it.

If you decide to pursue a restructuring, it’s important to know that tenant-landlord restructurings are not common, and you’ll want to have your case thoroughly evaluated by a real estate professional to determine whether it makes sense to pursue and, if so, to determine the best strategy for potential success.