Negotiating with Irvine Company on Terminating Commericial Lease

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woodbury_owner_IHB

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Wanted to check if anyone had experience terminating a commercial lease with the Irvine Company. My friend has about 9 months left on her lease, but her business is failing and she is losing more money leaving the business open than just shutting the doors (and paying rent for the remainder of the lease). IC wants her personal financial records before working with her. She is financially able to pay the rent, but obviously wants to lessen the financial blow any way possible.



Any suggestions on how to negotiate with IC with this type of situation? Would it be better for her to stop paying rent and then letting IC come up with some sort of arrangement? Do you think IC will take a prepayment for 6 months in exchange for forgoing the remainder 3 months of the lease?



Thanks in advance for any suggestions.
 
[quote author="woodbury_owner" date=1257944596]Wanted to check if anyone had experience terminating a commercial lease with the Irvine Company. My friend has about 9 months left on her lease, but her business is failing and she is losing more money leaving the business open than just shutting the doors (and paying rent for the remainder of the lease). IC wants her personal financial records before working with her. She is financially able to pay the rent, but obviously wants to lessen the financial blow any way possible.



Any suggestions on how to negotiate with IC with this type of situation? Would it be better for her to stop paying rent and then letting IC come up with some sort of arrangement? Do you think IC will take a prepayment for 6 months in exchange for forgoing the remainder 3 months of the lease?



Thanks in advance for any suggestions.</blockquote>


Did she personally guarantee the lease? If not, she has no reason to give them personal financial statements. The business' income statement and balance sheet should suffice, and it would reflect that the business is losing money.



Some sort of buyout is a popular way to terminate a commercial lease early. The recent ones I've seen are around 50% of the remaining rent due under the lease. You may be able to negotiate a better deal, or the Irvine Company may tell you "too bad". If the business (LLC/LP/Corporation, etc.) is the only entity signing on the lease, and the business has no cash (she is "feeding" the business to stay afloat), then they may be willing to accept less. If the company is going out of business anyway, Irvine Company should be willing to take a smaller payout.



A last alternative, if the company is financially viable at a lower rental rate, is to blend and extend the lease. Your friend could agree to extend the lease for 3-5 years, receive a reduced rate for 6-12 months, say half-rent, and then continue on to pay the higher rental rates. That is all dependent on the outlook for the business once the economy starts improving...



What kind of property is this? Retail, Industrial, or Office?
 
Thanks for the reply. Unfortunately, she is personally guaranteeing the lease. This was mandated by IC when the lease was signed (for obvious reasons). This is a retail location and she is no longer interested in even running the business (so lower lease extension is not an option). I guess the real question is whether she should stop paying rent in order to get IC's attention. If she provides her financial statements, I doubt IC will budge since she can afford the rest of the lease payments.
 
[quote author="woodbury_owner" date=1257949123]Thanks for the reply. Unfortunately, she is personally guaranteeing the lease. This was mandated by IC when the lease was signed (for obvious reasons). This is a retail location and she is no longer interested in even running the business (so lower lease extension is not an option). I guess the real question is whether she should stop paying rent in order to get IC's attention. If she provides her financial statements, I doubt IC will budge since she can afford the rest of the lease payments.</blockquote>


They may still budge if they can lease the space out quickly.



Another alternative - she can sub-lease the space, even if it's at a lower rent than she pays, and she will probably come out ahead of the payoff scenario.



Does the lease agreement allow for subleasing of the space?
 
[quote author="woodbury_owner" date=1257949123]Thanks for the reply. Unfortunately, she is personally guaranteeing the lease. This was mandated by IC when the lease was signed (for obvious reasons). This is a retail location and she is no longer interested in even running the business (so lower lease extension is not an option). I guess the real question is whether she should stop paying rent in order to get IC's attention. If she provides her financial statements, I doubt IC will budge since she can afford the rest of the lease payments.</blockquote>
Just a heads up...it's common knowledge that TIC monitors these boards. You may not want to give enough info on here that would allow them to figure who this is, for negotiating purposes.
 
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