33 Signs That the Building Your Company Leases May Be In Serious Financial Trouble

As your company seeks to reduce costs and preserve its cash, it is important to keep a careful eye on those 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 or other challenges that, if unresolved appropriately, could hinder your company’s ability to enjoy a productive business environment, irrespective of your continued rental payments.

Watch for a number of issues that could signal your landlord is having difficulties, or may be headed for them. They could be signs that your landlord may be in danger of losing its building. While this list is not intended to be complete, some indicators may include:

1. Significant increases in vacancy in your building

2. Increases in vacancy in other buildings where your landlord has an ownership interest

3. Increases in vacancy in neighboring competitive buildings

4. 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)

5. Decline in response time and / or communications for service, maintenance, or repairs (a sign that staff has been cut or is stretched too thin)

6. Increase in equipment and system breakdowns, such as elevators, HVAC systems, etc. (indicates a decline in preventative maintenance, staff cuts, or more)

7. Fewer landlord or management company employees visible on site

8. Decline in security, life and property safety services

9. Consistent lack of consumable items in restrooms and other areas

10. Interior office, common area, or window cleaning occurs less often

11. Trash not disposed of in a timely manner or is stored in basements and other areas

12. Snow not removed from parking lots in a timely manner

13. Landscaping not updated or maintained and / or grass is cut less often

14. General deterioration of the appearance of the building, parking lots, and grounds

15. Reduction of tenant events

16. Deferred capital improvements

17. Preventative maintenance announced or planned but, not implemented

18. Floors, glass, and metal and other interior components not polished or maintained

19. Band-aid repairs being made in place of needed capital replacements

20. Unresolved mechanics liens from contractors and other service providers

21. Real estate taxes delayed or not paid

22. Mortgage payments delayed or not paid

23. Water, utility, or other payments delayed or not paid

24. Increase in unresolved or unpaid fines from the municipality and / or other governmental authorities

25. Substantial and / or unexplained increases in operating expenses and costs of landlord or management company provided services passed on to tenants

26. Landlord making multiple requests for you to sign estoppel certificates or lease summaries (suggests that the landlord may be scrambling for financing or attempting to sell the building)

27. Real estate brokers unwilling to show your building to prospective tenants (suggests that landlord is unable or unwilling to pay commissions – typically a sign of a cash crunch)

28. 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)

29. Contractors unwilling to work in your building (see above)

30. Multiple switching of leasing and / or managing agents, building managers, cleaning companies, security services, vendors, service providers

31. Landlord selling other assets

32. Landlord’s inability to sell or refinance your building

33. 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!  That’s right!  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.

“But, we have a lease with many years remaining;  We pay rent and have never been late!  They can’t take our space away from us….can they?”

The answer to that question is a resounding…..”That depends!”  It depends on a number of factors, from whether or not your landlord will really lose its building, 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.

Above, we discussed 33 Signs That the Building Your Company Leases May Be In Serious Financial Trouble.  Guess what?  There are more than 33 signs!  Take a look around your building and ask yourself some of these questions:

34. Has building management or maintenance staff been cut?

35. Is the landlord any less responsive?

36. Are capital projects being delayed?

37. Is construction languishing in an incomplete state for extended periods?

38. Are repairs taking too long to complete?

39. Does the building look as good as it did?

40. Are the interior and exterior common areas being well maintained?

41. Is the landscaping being properly maintained, trash being removed and parking areas being plowed of snow promptly?

42. Are vacancies growing?

43. Are smaller, less desirable, and / or transient tenants taking space?

44. Has the landlord tried unsuccessfully to sell or refinance the building?

These are common indicators that a building and / or its landlord may be in serious financial trouble.  So, how bad could it get? What could happen if your landlord DOES lose your building to its lender…..or, to the sheriff for non-payment of property taxes?  It could get ugly…very ugly, with your company’s productive becoming the victim.

Do your homework…early and thoroughly!

About Real Estate Strategies Corporation
Real Estate Strategies Corporation is a respected corporate advisory and transaction services firm that provides thought-leadership, decision-making, planning, project management, and transaction execution services to finance and senior executives at management team-led public, private, and portfolio companies, and not-for-profit organizations.  Under the leadership of its award-winning CEO, Andrew Zezas, RealStrat’s clients engage the firm when acquiring, disposing of, renegotiating, or enhancing occupied leased or owned real estate in New Jersey, Pennsylvania, New York, Connecticut, and throughout North America.  By creating and executing Business DRIVEN Real Estate Solutions and identifying hidden Opportunities, RealStrat drives greater operational and financial performance in support of its clients’ stakeholder objectives, M&A requirements, and exit strategies.

In the current economic environment, RealStrat’s efforts are focused on uncovering, capturing, and re-purposing hidden liquidity and minimizing risk in its clients’ leased and owned real estate.  The firm provides counsel as to competitive advantage strategies in preparation for the eventual economic recovery.  Visit www.RealStrat.com. Read about timely commercial real estate issues at RealStrat’s blog at www.CorporateAdvisor.wordpress.com. Follow RealStrat at http://www.Twitter.com/RealStrat.

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3 Responses to “33 Signs That the Building Your Company Leases May Be In Serious Financial Trouble”


  1. 1 kevin February 9, 2011 at 3:42 pm

    Andrew, excellent points, great article. Specifically, the thought surrounding the non-disturbance lease clause that may protect your interests in the leasehold. I would recommend that clause be inserted when the tenant has come out of pocket for substantial tenant improvements and build-out.

    Kevin

    • 2 RealStrat February 9, 2011 at 4:59 pm

      Kevin:

      Thanks for writing – in! You’re absolutely correct about tying non-disturbance agreements to tenants paying for their own construction. You obviously know your business!

      Continued success!


  1. 1 Tweets that mention 33 Signs That the Building Your Company Leases May Be In Serious Financial Trouble « Corporate Advisor -- Topsy.com Trackback on February 8, 2011 at 11:08 am

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THIS WORK IS DESIGNED TO PROVIDE PRACTICAL AND USEFUL INFORMATION ON THE SUBJECT MATTER COVERED AND REPRESENTS THE OPINION OF THE AUTHOR. HOWEVER, IT IS PROVIDED WITH THE UNDERSTANDING THAT THE AUTHOR IS NOT ENGAGED IN RENDERING LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE TO THE READER. IF LEGAL, FINANCIAL, ACCOUNTING, OR OTHER PROFESSIONAL ADVICE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL SHOULD BE SOUGHT. THE AUTHOR SPECIFICALLY AND EXPRESSLY DISCLAIMS ANY LIABILITY THAT MAY BE INCURRED AS A RESULT OF THE USE OR APPLICATION OF THE INFORMATION THAT IS CONTAINED IN THIS WORK.

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