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Gag(a)-Worthy Property Conditions = Rent Reduction?

homeless-300x156News outlets have recently reported that Lady Gaga’s father is refusing to pay the rent due on the commercial restaurant space occupied by him in Grand Central Terminal.  gct  Essentially, he has claimed that physical conditions interfere with the successful operation of his business.  These conditions allegedly include a growing homeless population that monopolizes seating intended for customers consuming food, rodents and aging facilities such as bathrooms and seating.  This post will discuss whether the tenant in this instance has a valid defense for refusing to pay his rent and other options that may be available to him.

In this case, the particular restaurant is in the center of the food court and does not require a patron to enter an area exclusively used by those being served.  It inherently allows for non-customers to occupy the restaurant space along with paying customers and may legitimately adversely affect business conditions.  The landlord in this case, the MTA, owns and manages the rest of Grand Central Terminal, making it potentially able to control adverse business conditions.

Generally, commercial leases negotiated by this author anticipate a tenant’s potential request for a rent reduction when property conditions deteriorate and forbids such action.  Most commercial leases provide that the landlord does not warrant property conditions and that a tenant therefore cannot withhold rent for diminished property conditions and the like.  Also, since this restaurant space was readily viewable and accessible prior to its being rented, the tenant could have anticipated the issues that he has recently raised and was aware of property conditions.

The tenant may consider attempting to negotiate  revised lease terms with a reduced rent and payment schedule for overdue rent.  Such a lease modification  may include a reduced rent payment more in keeping with current business conditions.  If these options are not feasible and the tenant wishes to leave the space entirely, negotiating an early exit  may be prudent.

Having experienced counsel negotiate the initial lease is beneficial in this instance.  A liberal assignment and sublet clause may allow for the troubled tenant to leave the location and for another tenant to take over the business.  Personal guarantees also may come into play.  Most tenants are comprised of a legal entity such as a corporation.  Many landlords require that the individual “behind” the entity sign a guaranty  to perform the lease obligations if the tenant fails to do so.  Guarantees take several forms.  However, it would be helpful to the tenant if the guaranty type is a “good guy” guaranty.  This means that the guarantor is no longer individually responsible to the landlord once the tenant actually leaves the space and returns the keys to the landlord.  Another option would be for the tenant to sell the business to someone who is not deterred by the physical conditions.

Of course, if none of these options work, the landlord may eventually bring a lawsuit in landlord-tenant Court for past due rent.  Such a case may be defended on grounds of adverse business conditions.  However, judges in commercial proceedings are not as likely to be sympathetic towards a commercial tenant as they may be in a residential case.   Likewise, the judge is unlikely to allow the tenant to be reimbursed for upgrades to the space, as such a possibility is probably forbidden by the terms of the lease.

We are available to interpret whether current lease conditions may allow for a rent abatement and other topics of interest to our readers.

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