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A Peppercorn can prevent eviction!

Many small businesses rent rather than own the property where operations occur. Amid the challenges created by COVID in 2020 business owners have struggled to make ends meet. Many have proactively talked to their landlords and in large part landlords have been flexible. Be warned, modifications to the lease require a new contract.  Just because a landlord allows a tenant to pay what they can, does not mean the tenant won't be evicted or that the landlord won't seek the full amount of rent owed under the lease. 

While dependent on jurisdiction, tenants need to be aware of being in material breach of their lease agreements.  Often, when a landlord allows a tenant to reduce their monthly obligation this is merely an accommodation. It does not mean the lease has been modified, or that a binding exception has taken place. When the landlord and tenant formed the original lease, an offer was made, an acceptance occurred, and consideration was exchanged.  Otherwise known as the elements of contract formation.   In the contract, the tenant is promising to pay the rent.  Breaching the promise to pay does not necessarily make it material.  A material breach is commonly calculated as >20%of the entire agreement.  

The commercial property business model commonly involves leveraging property assets against the value of the leases and the barrowing power of the landlord.  Why then is the landlord allowing tenants to short pay the rent?  Every dollar received from a tenant now is a dollar the landlord can get.  Their need for cash flow is no different than the needs of the tenant. So, just like the tenant, its better for the landlord to take any dollar they can get as that is one more dollar they can use after the fallout to acquire or negotiate the debt with their lenders.

What can a tenant do that wants to keep their lease?  Form a new contract!  The person who signs a document first is the one making the offer, the second signer is accepting, but a consideration is needed. What can a tenant who is receiving reduced rental payments offer the landlord?  In Wisconsin, they need to extended sufficient consideration, otherwise known as the "peppercorn rule." So what kind of a "peppercorn" can the tenant offer under the new rental agreement? How about paying the amount owed at-least one day earlier than under the original agreement.

If your landlord has made an accommodation to the amount of rent owed, even if it is in writing and signed, it would be in the best interest of the tenant to have an attorney look at the document.  If consideration has not been exchanged, chances are it will not be binding or have the desired effect.  Failure of the tenant to pay the full amount of the rent owed before the expiration of the lease can result in the tenant losing the premises and their improvements made to the space.

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