Coronavirus (COVID-19) and Leased Real Property – Top Considerations for Landlords and Tenants
Companies everywhere are analyzing options, safety nets, and contingency plans for these challenging times. The growing number of shutdowns, “shelter-in-place” and “stay home” orders is putting a strain on landlords and tenants, who either need to work together or react in different ways.
As COVID-19 numbers increase, you should know more about your specific lease provisions and applicable real estate law. Leases can vary widely in terms, but good legal counsel can help you explore options to help cashflow, negotiate a mutually beneficial arrangement, or advise on options to enforce or get out of a lease. The following are just some of the top things to consider when evaluating lease options during these interesting times:
1. Insurance. Your insurance coverage may cover business interruption, pollution liability, or other areas that may have triggered a claim because of COVID-19. Get assistance reviewing your insurance language during the applicable claim period/deadline (i.e. don’t wait).
2. Quiet Enjoyment. A lease will often contain a covenant of quiet enjoyment (i.e. that the tenant’s use of the premises won’t be disturbed absent a breach). Not being able to use/access the leased space due to the presence of COVID-19 may constitute a breach of quiet enjoyment.
3. Damage/Destruction. Most commercial leases include language that describes the obligations of the landlord and the tenant when the premises are destroyed or damaged. The language in your particular lease will determine whether damage, destruction or other casualty caused by COVID-19 changes either party’s obligations under the lease. Better to know this language and its impact before negotiating with a landlord or tenant.
4. Hazardous Substances. Most commercial leases contain hazardous materials provisions, which include the definition of hazardous materials and identify who is responsible for any loss. The presence of COVID-19 virus in the premises, and the parties’ rights in that situation, will depend on the specific terms of the lease and applicable law. Depending on your situation, the landlord or tenant may have certain obligations to prevent the spread of COVID-19, including heightened sanitizing/cleaning requirements, wearing of gloves and masks, additional hand sanitizer stations, etc.
5. Interruption of Services. Most commercial leases spell out the obligations of landlord and tenant with regard to maintenance and other services. Many of these obligations may relate specifically to COVID-19 (HVAC, janitorial services, utilities, etc.). To remedy this situation, either the landlord or tenant may need to send notice, as that is defined in the lease, after which the other party must fix the problem within a designated time period. Other remedies for an interruption of services may include notice of default and rent abatement, reimbursement, or an action in equity or law for damages.
6. Force Majeure. Force majeure language provides relief or a “pass” partially or completely for party that cannot perform certain obligations due to specified circumstances outside that party’s control. Although, most force majeure clauses do not provide a pass for payment obligations, this clause may change many aspects of the parties’ obligations under your lease.
7. Continuous. Use/Hours of Operation/Go Dark. Many commercial leases obligate a tenant to stay open during defined hours of operation, or they may generally require a tenant to stay operating 24/7. These leases may also require the landlord to maintain an office or a point of contact. If these requirements cannot be met, the parties may want to send notice, carefully following any notice provisions in the lease.
8. Surrender Obligations. If a lease is close to its termination date or will expire during this period of unprecedented uncertainty, both parties should pay careful attention to a lease’s surrender provisions (and corresponding obligations). We foresee many parties being surprised by an unexpected cancellation, stuck with holdover costs, or facing other issues that often occur during surrender.
9. Wrongful Death. If someone contracts COVID-19 and dies from the virus, a party that did not perform their lease obligations may face a wrongful death claim and potentially a large judgment if the death can be traced to those breached obligations.
10. Thinking Long Term/Opportunities. This crisis might present the opportunity to shore up relationships, work with the other side, and derive goodwill in the community. The current COVID-19 situation may also inspire some parties to try to facilitate a change in location, or to negotiate on floor plan size, price, renewal, or other terms.
Almost every company that has a lease right now, needs to evaluate the terms of that lease. An attorney who has dealt with hundreds of leases can help you quickly discern some or all of your options and perhaps enforce crucial rights. The attorneys at Pruvent are helping clients with several lease matters related to COVID-19, and they have ample experience with commercial lease disputes. If you think you need help (or better help) with a current lease matter, give us a call.