Unlocking Value: The Power of Proactive Blend and Extend Leases

Why would anyone voluntarily pay to have increased rent? The answer from the landlord side is simple and can be found when considering PV (present value) versus FV (future value) of income. The immediate increase in NOI can make such an action very useful if one is considering a sale of the property. The idea is similar to when a landlord pays a tenant in an underperfoming property, to move and derives immediate value by then selling the property or renting at market value.

If a tenant accepts an offer to renegotiate their lease and pay market value, while receving cash consideration for this concession, both the tenant and the landlord can experience various financial benefits:

Benefits for the Tenant:

1. Upfront Cash: By accepting the offer, the tenant gains upfront cash, providing liquidity and potential for investment or business expansion.
2. Potential Cost Savings: Depending on market conditions, the new lease terms might align with or even be lower than current market rates, resulting in cost savings for the tenant.
3. Tax Relief: If the tenant negotiates favorable terms, there could be potential tax relief or deductions associated with the lease arrangement.

Benefits for the Landlord:

1. Increased Rental Income: Adjusting the lease to market value allows the landlord to generate higher rental income, positively impacting their Net Income (NI).
2. Improved Property Valuation: Higher rental income can enhance the property’s value, providing financial benefits if the landlord decides to sell or refinance.
3. Tax Implications: The landlord might benefit from tax advantages associated with increased rental income and potentially offsetting certain expenses.

It’s crucial for both parties to carefully evaluate the terms and assess how the adjustments will impact their respective financial positions. Consulting with financial and legal professionals is advisable to ensure a comprehensive understanding of the potential benefits and implications.