Commercial Leases during the COVID-19 Pandemic
Commercial Tenants
If you are having issues paying your rent, opening a line of communication with your landlord can go a long way to maximizing your chances of getting through these times.
Landlords may be surprisingly willing to negotiate during these times for a number of reasons. First of all, their legal remedies have been limited due to the eviction moratorium coupled with the fact that the courts remain closed for new proceedings (other than essential services like illegal evictions). Judges may also be more receptive to any defenses a tenant may raise. Landlords may also be wary of taking back space during these times as the demand for commercial space (whether office or retail) is likely substantially reduced until the fallout of the pandemic becomes clear.
Some options include an abatement of rent, a partial abatement of rent, repayment of some or all of any abatement over a period of time or over the remainder of the lease term, applying some or all of the security deposit to rent and/or an abatement of rent in exchange for an extension of the term of the lease.
One important thing to keep in mind is to bring in an attorney when an agreement to modify the underlying lease document(s) has been reached and a proposed amendment has been circulated for review and signature.
It is easy to inadvertently waive your rights and remedies without realizing the impact one sentence may have. For example, a representation that the landlord is not in default can undercut your position in a long term dispute over a repair obligation.
Commercial Landlords
If you have tenants struggling to pay rent, you may want to proactively reach out to them to discuss options. Tenants that were forced to close or lost substantial revenue as a result of the pandemic likely cannot rely on their business interruption insurance policy since most insurers carve out pandemics from coverage. It will also take substantially longer to evict a tenant due to the court closures. Judges may be more receptive to any defenses a tenant may raise. Further, leasing a space in these times will likely be a daunting task.
Some options include an abatement of rent, a partial abatement of rent, repayment of some or all of any abatement over a period of time or over the remainder of the lease term, applying some or all of the security deposit to rent and/or an abatement of rent in exchange for an extension of the term of the lease.
Should you decide to negotiate a lease modification with your tenant, you should be sure to confirm that you do not need your lender’s prior written consent.
Having an experienced commercial real estate attorney review your loan documents can ensure that you avoid inadvertently defaulting under your mortgage.
In the same way it is important for your tenants to have an open line of communication with you, it is important that you have an open line of communication with your lender. Lenders almost certainly do not want to have commercial property in their portfolio during these times. So, if you are able to show them that you can get through these times if they provide you with some flexibility, they may be inclined to offer it.
Please note that the content provided in this email is for informational purposes only and should not be construed to be legal advice. No attorney-client relationship has been created unless and until an engagement agreement has been fully signed and delivered to the Firm and any retainer has been paid in accordance with such engagement agreement.