Commercial Leases & the COVID-19 Pandemic

Many of you have asked us about acquaintances, friends, or family members who cannot pay rent due to COVID-19. Some have been forced to shut down, others who remain in business simply cannot pay their bills. What is a tenant supposed to do? Consider the following:

Some tenants may want to just stop paying rent. Most leases only provide for tenants to suspend payment if a property is damaged by a certain percent that would prohibit them from conducting business. This does not relate to COVID-19. So stopping payment may not be the best approach or option at this point.

The first step is to conduct a thorough review of your lease. Most leases do not cover health pandemics. Provisions that may be included in the lease like, force majeure relate to unforeseeable circumstances that prevent tenants from performing their obligations of the lease. These events are typically acts of God, war or strikes. This is the provision many are hoping will apply to excuse performance. However, the force majeure provision does not cover nonpayment of rent. With the executive order of the stay at home policy in place, does this excuse a tenant’s obligation to perform or remain open under the terms and conditions of the lease? A provision that may be considered is the frustration of purpose. A tenant would have to show that their rights and obligations under the lease have substantially changed and it is impossible to perform any and all of their obligations under the lease. During times of war and prohibition, frustration of purpose was a successful excuse of obligation. This may be a possible argument with a health pandemic. However, it would be determined through litigation and with the courts currently on hold, would not be an immediate remedy and may incur additional costs and landlord potential damage claims.
The second step is to review the possible federal and state level assistance programs. The governmental assistance programs currently available: The Florida Small Business Emergency Bridge Loan is available through the Florida Department of Economic Opportunity; The Florida SBDC disaster recovery specialists are available to assist in help with the preparation of disaster loan applications; and the Federal CARES ACT.
The third step is to Contact your landlord to review your current situation, discuss the lease provisions, to share any federal and state programs you may have applied for and to request a rent adjustment. This upfront discussion will demonstrate tenant’s efforts to mitigate its obstacles in the current conditions. Rent Adjustments may take many forms, like temporary rent reduction for a limited time, rent deferral with an amortization over the remaining term of the lease, or a blend, with rent deferral and an extension of the lease term to tack on the rent deferral payments. Any agreement or modification of the lease terms should be well documented.

During these unprecedented times, it is recommended to consult with an attorney who is closely monitoring the COVID-19 legislative updates.

Sincerely,

Anastasia M. Stefanou, Esq., astefanou@berlinpatten.com
Berlin Patten Ebling, PLLC

This communication is not intended to establish an attorney client and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

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