When Winning is Losing

When Winning is Losing

Sometimes, when you think you’ve won, you’ve really lost. In my most recent case, I was very successful in working out a bad lease for a client.  Prior to coming to me, the client had been through several rent deferments.  The deferments had come due and the landlord was unwilling to give any further accommodations.  After months of negotiation, the tenant thought she had the parameters of a lease extension.  But, there were numerous open issues and financial terms to address.

After discussing the client’s financial position, I was able to negotiate a write-off of the deferred rent, over $300,000, and a tenant improvement allowance to modernize the space in exchange for only a 3 year extension of the lease and a slower increase in the rent. Only the TI would be guaranteed.  These negotiations took over 2 months.  We determined that the tenant did have an A/R balance of under $20,000 which would have to be paid as a condition of the new lease.  The client assured that the could make this payment and could fund any tenant improvements in excess of the TI allowance.  The tenant signed the new lease in early September.  We all felt like this was a win – the landlord, tenant and I.

After Hurricane Irma, I called to check on the client to make sure everything was ok as I had not received the fully executed lease back from the landlord. She complained that the landlord was stalling on signing the lease and therefore, she couldn’t start the TI.  Before I volunteered to check on this, I probed.  She complained that business loss was significant due to the hurricane and its aftermath and she was not able to make the promised payment and that landlord was being unreasonable, refusing to work with her.  Alarms started going off all around me.  This money should have been available before the hurricane at the time the lease was signed.  She started pointing fingers at everyone again – the landlord, the property manager, her partner, FPL, me.  Clearly, the issue was, is and always has been the tenant’s inability to pay the rent and other obligations prior to and since the execution of the modification.

What appeared to be a big, hard fought win looks to be turning into a loss. Could this have been avoided?  I don’t think so because the tenant, the client, has not been honest.  Mostly, she has not been honest with herself about what she could and could not afford.  But she also wasn’t honest with me and therefore, I could not properly advise her or handle the negotiations.  Expectations were set based on false premises and when we thought we had a win, we really lost.  Any bargaining position we might have had was lost as soon as she signed the lease.  If the tenant did not have the financial wherewithal to meet its obligations, either under the prior lease terms or under the renegotiated lease terms, she should have never signed the new lease.  As a result, we have lost the thrill of victory and now feel the agony of defeat.