33 Reasons Your Landlord May BE in Trouble

As your company strives to reduce costs and save cash, it is important to keep a look out on other companies that provide services to you that can have a material affect on your ability to conduct business productively, safely, and profitably. Specifically, your company’s landlord could be experiencing financial challenges that, if unresolved, could make it difficult for your company to enjoy a productive business environment, regardless of your continued rental payments.

 A number of issues could signal that your landlord is having difficulties, or may be headed in a direction that leads to losing the building.
1. Significant increases in vacancy in your building
2. Increases in vacancy in other buildings where your landlord has an ownership interest
3. Construction projects that start at your building but, languish unfinished for extended time periods (typically a sign that contractors are not being paid on time or at all)
4. Decline in response time and / or communications for service, maintenance, or repairs (a sign that staff has been cut or is stretched too thin)
5. Increase in equipment and system breakdowns, such as elevators, HVAC systems, etc. (indicates a decline in preventative maintenance, staff cuts, or more)
6. Fewer landlord or management company employees visible on site
7. Decline in security, life and property safety services
8. Consistent lack of consumable items in restrooms and other areas
9. Interior office, common area, or window cleaning occurs less often
10. Trash not disposed of in a timely manner or is stored in basements and other areas
11. Landscaping not updated or maintained and / or grass is cut less often
12. General deterioration of the appearance of the building, parking lots, and grounds
13. Deferred capital improvements
14. Preventative maintenance announced or planned but, not implemented
15. Floors, glass, and metal and other interior components not polished or maintained
16. Band-aid repairs being made in place of needed capital replacements
17. Real estate taxes delayed or not paid
18. Mortgage payments delayed or not paid
19. Water, utility, or other payments delayed or not paid
20. Increase in unresolved or unpaid fines from the municipality and / or other governmental authorities
21. Substantial and / or unexplained increases in operating expenses and costs of landlord or management company provided services passed on to tenants
22. Real estate brokers unwilling to show your building to prospective tenants, meaning that landlord is unable or unwilling to pay commissions.  This is typically the sign of a landlord low on cash.
23. Contractors seeking payment from you instead of landlord (indicates a lack of confidence on the part of contractors in their ability to be paid on time, in full, or at all)
24. Multiple switching of leasing and / or managing agents, building managers, cleaning companies, security services, vendors, service providers
25. Landlord selling other assets
26. Landlord’s inability to sell or refinance your building
27. Change in landlord’s leasing program – agreeing to many short term leases to small, transient, and / or undesirable companies
What can you do to protect your company and assure that your environment remains productive, safe, and profitable, and that your company receives the services to which it is entitled?
Imagine planning and executing a well designed defensive operational and financial strategy, only to find out that the real estate your company leases may not be under your control and that the space may be pulled out from under you!   Your landlord may not be as good at pruning expenses and could lose your building, throwing into question your company’s rights to remain in its space.
Even if you have been paying rent you may not be able to stay in the building if the Landlord loses the building.  It depends on a number of factors, to who will end up with it, to what the process will be if the landlord does lose the building, to how thorough your company’s lease was negotiated in the first place and what protections that document affords you.
The first step is to read your company’s lease. Check all of the clauses that might impact your occupancy, including those pertaining to non-disturbance, landlord default, self-help, sublease, early termination, and others. Since your lease constitutes the rules of engagement, be certain to understand your company’s rights, privileges, and obligations, in the event of a serious landlord problem.
Make it your business to understand all lease components that could affect your company’s ability to remain in the building if the landlord were unable to support it financially. Specifically, does your lease provide for self-help (the ability to secure services that the landlord fails to provide) in the event that the landlord defaults in providing services to you? Can you contract for temporary cleaning and other services? Can you secure utilities directly from the utility provider? Can you do the above without putting your company into default of its lease?
What if the landlord actually goes bankrupt and ownership of the building reverts to the lender? Can the lender terminate your lease? Maybe! Does your lease require the landlord to secure a non-disturbance agreement for you from the lender? Has the landlord provided you with that document? A non-disturbance agreement, if written properly, will most often prevent a successor, like a lender, from terminating your lease.
By now, you’re likely asking: “Why would a lender terminate our lease? Wouldn’t they prefer to retain rent paying tenants?”
That, too, depends! It is possible that your building could have a greater value or a greater likelihood of being sold if it were vacant. Perhaps a larger tenant, or one that for some reason is more desirable, may want your space. Or, maybe your company’s use of its space is not conducive to the lender’s future plans for the building. Without a non-disturbance agreement, your company could receive notice to vacate and have little choice.
When commercial landlords experience financial difficulties, the tell tale signs may be easy to spot. In many cases, payments to vendors, service providers, taxing authorities, and others become delayed or are sometimes not paid at all. In others, the building shows signs of neglect.
If you believe you have reason to be concerned, do a little detective work. Check with the local property tax dept, utility companies, and other building services providers to confirm that bills are being paid in-full and on-time. Ask around, too. Are vendors, commercial real estate brokers, contractors, and others being paid in-full and on-time? But, be careful here. You wouldn’t want to spook anyone and create concern about your landlord if problems don’t exist.