The coronavirus (COVID-19) pandemic is forcing commercial landlords and tenants to tackle complex business and legal decisions…
The coronavirus (COVID-19) pandemic is forcing commercial landlords and tenants to tackle complex business and legal decisions. So even if there is no immediate crisis, both parties should be reviewing their leases right now.
As the economic impact of COVID-19 continues to grow, tenants who are suffering through less business activity or being forced to close their doors will not want to pay or may be unable to pay the required rent. For landlords, the challenge is to determine what concessions may be available and acceptable to their lenders.
Review Your Lease Provisions
In most cases, the terms of the lease will be the starting point for landlords and tenants. While states like New Jersey have enacted new laws that prevent residential evictions during the pandemic, they do not excuse the payment of rent. In addition, such laws do not address commercial properties.
In reviewing a lease, the starting point should be any force majeure provision. The provision relieves the parties from performing specified duties under the lease in certain circumstances. The circumstances include those deemed beyond their control that make performance inadvisable, commercially impracticable, illegal, or impossible. Examples include natural disasters like hurricanes, floods, earthquakes, and other “acts of God.” However, they also apply to manmade disasters including include war, terrorism, civil disorder, supply shortages, and labor strikes.
With COVID-19, the key is to determine whether “disease outbreaks, “epidemics,” “pandemics” or the like are considered force majeure events under the terms of your lease. However, even if the provision does apply, it typically only governs non-monetary obligations, such as ceasing operations on the premises. Accordingly, it would not excuse the non-payment of rent.
Depending on the circumstances, other lease provisions may be applicable. If the landlord was required to close the building or the tenant was required to shut down operations at the building, operating covenants, rent abatement provisions, co-tenancy requirements, and right of access guarantees may be relevant.
Start a Conversation Now
Landlords and tenants should start a conversation about potential short-term concessions, such as rent abatements or application of security deposits in lieu of rent before the situation becomes dire. For tenants, being proactive will demonstrate your commitment to fulfilling your obligations under the lease. To make your case for concessions, be sure to document the hardships you are suffering and have a proposed plan for dealing with them.
In some cases, the parties may be able to come up with a reasonable and practical solution that everyone can live with in the short term. If landlords and tenants do reach an agreement, it is imperative to properly document any lease modifications in writing. Given the uncertainty surrounding the pandemic, landlords and tenants should also be sure to preserve their rights.
Don’t Forget About Lenders
While landlords may be sympathetic to tenants’ rent issues, they are often restricted by applicable loan documents from granting certain concessions. For instance, landlords may be required to maintain a certain level of income to meet the loan requirements. In many cases, loan documents do not allow such changes in the leases without approval and have strict income to loan payment coverage ratios. The result is the need for legal counsel to coordinate between the three parties to avoid lease default, loss of the tenant, and default under the applicable loan.
How We Can Help
The attorneys of Scarinci Hollenbeck’s Commercial Real Estate Group are available to assist all entities, including landlords, tenants, and lenders. We can help you navigate these novel and complex commercial leasing issues and also help you explore additional solutions, such as the availability of insurance and financial assistance programs.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Victor Kinon, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
How the Courts Are Reacting to COVID-19 Contract Cases
Breach of contract cases arising out of the COVID-19 pandemic are slowly making their way through the court system… Breach of contract cases arising out of the coronavirus (COVID-19) pandemic are slowly making their way through the court system. The early decisions shed light on how courts are handling force majeure provisions and contract defenses […]
What to Know About USPTO COVID-19 Prioritized Trademark Examination Program
The USPTO recently announced a new COVID-19 prioritized examination program for certain trademark and service mark applications… The U.S. Patent and Trademark Office (USPTO) recently announced a new COVID-19 prioritized examination program for certain trademark and service mark applications. It is available for products that are subject to U.S. Food and Drug Administration (FDA) approval […]
After a difficult few months, New Jersey restaurants are gradually reopening their doors for on-premises dining. After a difficult few months, New Jersey restaurants are gradually reopening their doors for on-premises dining. For restaurant operators and their customers, it is important to understand what is required to reopen safely. This article outlines the guidance provided […]
The Regulatory Examination Process has evolved in positive directions over the past several years. Thanks to these prior process improvements, the SEC, CFTC/NFA and FINRA are able to conduct regulatory exams virtually… The Regulatory Examination Process has clearly evolved in positive directions over the past several years. Thanks in part to these prior process improvements, […]
Understanding the Risks and Benefits of Remote Legal Proceedings
The coronavirus (COVID-19) pandemic has forced us to change the way we conduct everyday activities… The coronavirus (COVID-19) pandemic has forced us to change the way we conduct everyday activities. Court proceedings, arbitrations, and mediations are no exception, and parties to such proceedings increasingly rely on video conferencing to go “virtual.” While technology can allow […]
Will COVID-19 Prompt an Uptick in White-Collar Crime Investigations?
While the COVID-19 pandemic may be slowing the pace at which white-collar crimes are prosecuted, it would be unwise to expect that the pace of white-collar investigations will slow… While the coronavirus (COVID-19) pandemic may be slowing the pace at which white-collar crimes are prosecuted, it would be unwise to expect that the pace of […]
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Commercial Landlords and Tenants Must Involve Lenders in COVID-19 Issues
Author: Scarinci Hollenbeck, LLC
The coronavirus (COVID-19) pandemic is forcing commercial landlords and tenants to tackle complex business and legal decisions…
The coronavirus (COVID-19) pandemic is forcing commercial landlords and tenants to tackle complex business and legal decisions. So even if there is no immediate crisis, both parties should be reviewing their leases right now.
As the economic impact of COVID-19 continues to grow, tenants who are suffering through less business activity or being forced to close their doors will not want to pay or may be unable to pay the required rent. For landlords, the challenge is to determine what concessions may be available and acceptable to their lenders.
Review Your Lease Provisions
In most cases, the terms of the lease will be the starting point for landlords and tenants. While states like New Jersey have enacted new laws that prevent residential evictions during the pandemic, they do not excuse the payment of rent. In addition, such laws do not address commercial properties.
In reviewing a lease, the starting point should be any force majeure provision. The provision relieves the parties from performing specified duties under the lease in certain circumstances. The circumstances include those deemed beyond their control that make performance inadvisable, commercially impracticable, illegal, or impossible. Examples include natural disasters like hurricanes, floods, earthquakes, and other “acts of God.” However, they also apply to manmade disasters including include war, terrorism, civil disorder, supply shortages, and labor strikes.
With COVID-19, the key is to determine whether “disease outbreaks, “epidemics,” “pandemics” or the like are considered force majeure events under the terms of your lease. However, even if the provision does apply, it typically only governs non-monetary obligations, such as ceasing operations on the premises. Accordingly, it would not excuse the non-payment of rent.
Depending on the circumstances, other lease provisions may be applicable. If the landlord was required to close the building or the tenant was required to shut down operations at the building, operating covenants, rent abatement provisions, co-tenancy requirements, and right of access guarantees may be relevant.
Start a Conversation Now
Landlords and tenants should start a conversation about potential short-term concessions, such as rent abatements or application of security deposits in lieu of rent before the situation becomes dire. For tenants, being proactive will demonstrate your commitment to fulfilling your obligations under the lease. To make your case for concessions, be sure to document the hardships you are suffering and have a proposed plan for dealing with them.
In some cases, the parties may be able to come up with a reasonable and practical solution that everyone can live with in the short term. If landlords and tenants do reach an agreement, it is imperative to properly document any lease modifications in writing. Given the uncertainty surrounding the pandemic, landlords and tenants should also be sure to preserve their rights.
Don’t Forget About Lenders
While landlords may be sympathetic to tenants’ rent issues, they are often restricted by applicable loan documents from granting certain concessions. For instance, landlords may be required to maintain a certain level of income to meet the loan requirements. In many cases, loan documents do not allow such changes in the leases without approval and have strict income to loan payment coverage ratios. The result is the need for legal counsel to coordinate between the three parties to avoid lease default, loss of the tenant, and default under the applicable loan.
How We Can Help
The attorneys of Scarinci Hollenbeck’s Commercial Real Estate Group are available to assist all entities, including landlords, tenants, and lenders. We can help you navigate these novel and complex commercial leasing issues and also help you explore additional solutions, such as the availability of insurance and financial assistance programs.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Victor Kinon, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!
