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The Problem. Following a limited search effort, Tirzo Hernandez, a chef/manager, formally known as TNF Holdings, entered into a lease to operate Trumpets beginning on the 29th of May 2009. Start up operations consumed the next three months, with restaurant and catering operations beginning on the 15th of September. Within three months after opening, the company was apparently experiencing serious financial difficulties. At the January board meeting, we were advised that Tirzo’s was in default for their failure to pay January’s rent of $7,000. At the February board meeting, we learned that Tirzo was in arrears for about $35,000 and was seeking an agreement from the board to defer future lease payments until a larger customer base was established. However, some believe that the prospect of achieving a larger customer base is not that clear, due in part to a variety of customer and board member concerns. Pursuant to the lease, the company was formally notified that it was in default. Given such financial difficulties after only three months of restaurant operations, two likely conclusions emerged: 1) the lessee had badly misled the board concerning its financial ability to sustain restaurant operations; and 2) the board had apparently failed to perform sufficient due diligence with respect to the lessee’s financial worthiness. While other variations on the options listed below are possible, the first three represent the the main ones being considered.

Statement and Questions:

Faced with this leasing issue, what would you recommend to the board? Select the one that best reflects your sentiment.