October 25, 2020

There are many ways to settle these “Pandemic Commercial Default” cases, as I call them. This little vignette describes a complex settlement involving a big Manhattan owner and a large, venture-backed tenant. Itkowitz PLLC represented the Landlord.

In consideration of the tenant adhering to a payment plan commencing in 2021, the Landlord agreed to the following:

• Landlord dropped the late fees, which were considerable.
• Tenant agreed to allow Landlord to draw down on the letter of credit in full, without further notice.
• The delta between the arrears-minus-late-fees and the cash from the LC was the “Deferral Amount”.
• Tenant agreed to pay the Deferral Amount in 12 equal monthly installments, beginning on a date in 2021. 
• Part of the Deferral Amount payments would re-establish the security.

A good settlement, however, should address all issues or potential issues between the parties. You need to really scour the whole lease when you are doing a global settlement of a commercial case (that means every amendment and the guaranty). Thus, also in the agreement:

• The parties settled a dispute between them on the Tenant Improvement Allowance. This was a little tricky. Landlord agreed to pay Tenant’s contractor and discharge a mechanic’s lien occasioned by said contractor, in exchange for Tenant relinquishing any further right to the TIA.
• The parties addressed a future free rent provision in the lease. It would be weird if the Tenant, after being in such extensive arrears, got free rent on the lease’s anniversary. 

The parties also extended, increased, and ratified the limited and “good guy” guaranties that supported the lease. If you amend and modify a lease in a settlement, you might be waiving guarantor liability if you do not specifically address the guaranty and get the guarantor’s participation in the settlement. 

During the Pandemic, my law practice has leaned heavily towards commercial landlord and tenant litigation. I represent equal amounts of commercial landlords and commercial tenants. My experience has been that about half of the cases have settled in 2020. “Peace is good for business.”[fn1] 

Respectfully submitted, 

Michelle Itkowitz

fn1. Ferengi Rule of Acquisition # 35