In light of COVID-19 closures, many Lessees are requesting rent relief from their Lessors, in the form of deferral or abatement.  Lessors are more curious than ever to understand the financial situation of Lessees.  Under the AIR CRE Leases, is Lessee required to provide financial statements upon Lessor’s demand?

Short Answer: Yes, but only in connection with a sale, finance, or refinance by Lessor.  In such cases, Lessee is required to provide financial statements “reasonably required” by the lender or purchaser.

Only Required For Finance, Refinance or Sale: Pursuant to Paragraph 16(c), financial statements can be requested from Lessee only in connection with a “finance, refinance, or sale of the Premises.”  Accordingly, Lessee is not required to provide Lessor financial statements if Lessor simply desires to know Lessee’s financial condition.  However, if Lessee wishes to obtain rent relief from Lessor for circumstances relating to COVID-19, Lessor may attempt to condition any relief on Lessee providing financial statements, even though Lessor is not refinancing or selling the Premises.

Delivery To Lender or Purchaser: Pursuant to Paragraph 16(c), Lessee is required to deliver the financial statements to the “potential lender or purchaser designated by Lessor.”  Lessee is not expressly required to deliver the financial statements to Lessor under this provision.

Reasonably Required Financial Statements Only: Pursuant to Paragraph 16(c), Lessee is required to deliver only “financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years.”  Whether a particular request is reasonable depends on the circumstances.  However, the AIR CRE Leases indicate that a time period going back 3 years is reasonable. 

Excerpt from AIR CRE Leases

16. Estoppel Certificates.

…

(c)       If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall within 10 days after written notice from Lessor deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years.  All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.