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COVID-19 and Your Commercial Lease

Tips for Landlords and Tenants

· COVID-19,landlord and tenant,commercial leases

By: Will Van Vactor

COVID-19 is impacting a large number of businesses. Many businesses operate in spaces that the business owner rents pursuant to a commercial lease. For tenants, complying with the terms of the lease agreement when its business has been forced to shut down or operate from alternative locations can be a real challenge. For landlords, a tenant's default can jeopardize the landlord's position with its lender and otherwise threaten its business.

This blog post is intended to provide some general guidance for both landlords and tenants dealing with issues created by the sudden market impact of coronavirus. Subsequent posts will address common lease provisions that might be in dispute between a landlord and tenant given the current circumstances.

For landlords facing the risk of tenant default, you should:

  • Review your lease(s) so you understand your obligations to your tenant. Begin to consider whether there are any lease provisions you can temporarily waive that will not impact you financially but may be helpful to the tenant (but beware of any contract requirements included in any loan agreement you may have).
  • Review any mortgage or loan agreement to make sure you understand your obligations to your lender. 
  • Keep open communication with your tenant(s) so you understand what challenges they are facing and how they might impact you.
  • If you are concerned about how a tenant default will impact obligations to your lender, you may want to begin communicating with your lender to understand what flexibility it has and whether it is willing to waive any provision in the loan agreement.
  • If rent abatement is an option, consider how you will need to structure the abatement. For example, will the unpaid rent be due at the end of the term of the lease or end of this calendar year? Will you charge interest on the unpaid rent?
For tenants facing an unexpected shut down due to COVID-19 that is impacting your ability to perform under the terms of a commercial lease, consider:
  • Communicating with your landlord to see what lease provisions the landlord may be able to temporarily waive.
  • Stay up to date on available resources and assistance available to small businesses. A non-exclusive list of resources is available here. But we expect new programs to be announced throughout this crisis. At the time this blog post was published, reports are starting to come out regarding the small business relief included in the Senate's coronavirus relief act. 
  • Review the lease to understand the provisions. Although you should be familiar with the entire lease agreement, pay attention to the force majeure and "continuous operations" provisions.
  • Review your insurance policy to see if business losses related to COVID-19 might be covered. Not every policy will provide such coverage, but it is worth checking. 

In sum, it is important to be familiar with your lease, any applicable loan documents, and possibly your commercial insurance policy. We also believe that open communication is important so that everyone understands the challenges and needs of the impacted parties.

Lastly, every case is different, so it is important to discuss your case with your attorney to ensure you employ the best strategy given the facts specific to your situation.

General tips for landlords and tenants to consider if coronavirus is making complying with lease terms difficult.

DISCLAIMER

The information on this blog is for general informational purposes only. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship. Nothing on this site should be taken as legal advice for any individual case or situation. This blog should not be used as a substitute for competent legal advice from an attorney licensed to practice law in your state.

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