When the Landlord Isn't

When the financial structure underpinning ownership of an office building is distressed, the party purporting to be the landlord may lack decision-making authority. In such cases, it may be a lender or other financial partner calling the shots.

Tenants can spend months negotiating terms that the landlord may represent as acceptable only to have a lender balk. When this happens, the best-case is when a lender tweaks the deal in ways that, while annoying, are nonetheless acceptable, and the deal can proceed. In the worst case, the lender is unwilling to proceed, and/or the terms they demand are unacceptable. This can put the unsuspecting tenant in a bind, having squandered months of its project schedule only to return to square one.

There are two ways to avoid this risk. First, smart occupiers retain skilled advisors who have demonstrated knowledge of capital market dynamics and can readily identify potential issues of authority before they become problems.

Second, the best advisors will always advocate a process that keeps their clients’ options open. Having a nearly fully negotiated plan B is invaluable when something goes wrong with the top choice.

It won’t always be obvious when the landlord isn’t, but with the right strategy and process, it won’t matter.