Property & Equipment Leases
Property leases require a different strategy than bank workouts as you are in possession of someone else’s property and they have the ability to either shut you out or repossess. Both are very effective remedies that tend to deflect and prevent default.
However, default on both your landlord or your lessor of equipment is an everyday occurrence.
Let’s review our approach to property leases. It’s more of a practical workout than anything else. We implement a change of ownership of the business and then confront the landlord with a simple choice, forget the arrears and if the rent is too high reduce it going forward. There will be continuity going forward and a business capable of sustaining the rent. Much of the business’ other debt has been removed so paying rent can easily be accomplished.
The landlord has a choice – chase a defunct business organization, as we have moved to a new business organization and are willing to go to a new location, and have an empty space for as long as it takes to re-rent, sometimes an eternity. Or accept the loss of the arrears and understand that the current rent may be adjusted down to market level. There is immediate payment and a going forward promise which can be met.
This negotiation works very well and results in improving your position and satisfying the needs of the landlord.
The challenge is that you can get locked out of the commercial space and then the bank and the landlord will fight over the equipment and other valuable assets on location. But the reality is the landlord will probably want to work this out because of the threat of a long vacancy going forward. Better to lose the arrears than to continue being unpaid.
The same goes with leased equipment but with a twist. Other than vehicles few leasing companies want to repossess the used equipment. There is a significant challenge liquidating used leased equipment, and in fact, that is the basis of the workout. Despite the remaining value of the lease based on full new value, the current liquidated value is determined, and that then becomes the payoff for you owning the leased equipment. Frequently it so low that it becomes advantageous to buyout the lease at the liquidated value.
Alternatively, the new entity can take an assignment of the lease and keep paying, or return the equipment and get new or different equipment either leased or purchased, whichever is most beneficial.
In short, leases can be worked out usually to YOUR advantage.
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