Tenant protections from landlord defaults, financial trouble

Lease negotiations often focus on what assurances a landlord needs that the tenant will pay and perform its lease obligations on time, but in a post-COVID-19 world, where many commercial owners and developers are facing distress due to market uncertainties, the roles have been reversed and tenants are focusing more on protecting themselves from nonperforming landlords. With the significant time and money that is expended moving into and building out new space, and the long-term nature of a commercial landlord-tenant relationship, it is important for tenants to complete diligence on a potential landlord and have appropriate protections and remedies in place in case a landlord defaults. There are three main ways to accomplish the foregoing. The first two ways, which this article will cover, are evaluating a potential landlord’s financial strength and negotiating meaningful protections and rem- edies for a landlord’s economic defaults. The third way, which will be addressed in the second part of this two-part series, is negotiating for robust protections and remedies for a landlord’s noneconomic defaults.

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