COVID-19 & Commercial Leases | Helpful Tips
As the COVID-19 pandemic develops, businesses are scrambling to adjust to rapidly changing rules and policies. The implementation of these novel regulations has left many commercial landlords in the difficult position of determining if and how to enforce their leases. We’ve provided some helpful tips to help you navigate COVID-19 and commercial leases. First and foremost, review your lease in detail. Second, carefully review each of your insurance policies, and, if available, those of your tenant. Finally, evaluate the business relationship you have with your tenant, and whether strictly enforcing the lease is worth the potential long-term costs.
TIP #1: Whenever you’re communicating with your landlord or a tenant, do so in writing. If you have a phone call, write the other person an email afterward recapping the phone call. This is a good business practice and not a personal attack on anyone’s honesty. As a bonus, if both parties do this consistently, no one is offended, there is a clear record of what’s been communicated, and everyone is on the same page, quite literally.
The primary clause of your lease that may be triggered by COVID-19 is the force majeure clause. A force majeure clause usually allows parties to suspend the obligations of the lease due to unforeseen circumstances. It typically covers acts of God, war, riot or invasion, national emergency, government action including strikes, terrorism or the imposition of embargo, or extreme weather events. If a force majeure, or similar clause, is included in your lease, then its exact phrasing will determine whether it is triggered by events related to COVID-19. With that said, even the most precise leasing language may not clearly address a global event such as COVID-19.
Typically, if a party wishes to utilize the force majeure clause, that party will provide written notice to the other party, which will trigger suspension of some or all obligations under the lease and may allow for termination of the lease. Importantly, the burden of showing the enforceability of the force majeure clause is on the party wishing to initiate it. Again, the exact rights and responsibilities of each party will depend on the language of the individual lease.
TIP #2: Whether you’re a landlord or a tenant, put together a file with copies of your lease and your insurance policies. Carefully read each document making note of any language you think might apply as a result of events related to COVID-19. Look for words like “act of God,” “disaster,” and “disease.” Some leases and insurance policies added contagion specific language after the SARS outbreak in 2003, so look for pandemic related language too.
To date, in Washington, there has been no moratorium on the collection of commercial rents; however, the court closures effectively prevent any evictions or the pursuit of outstanding rents, until at least May. If cash flow is an issue, then commercial landlords should consider applying for Economic Injury Disaster Loans and Emergency Grants and may wish to encourage tenants to do the same.
Bottom line, whether a commercial landlord will be able to collect rent under COVID-19 regulations and emergency orders will depend on the individual lease and the interpretation of that lease. Landlords and tenants alike need to carefully review all their contracts and insurance policies to determine every possible avenue for enforcement and relief.