24 Questions for Commercial Landlords to Consider Before Amending Leases Due to COVID-19
Due to the COVID-19 outbreak causing businesses to close across the state and commercial space tenants requesting relief on rent, landlords are being advised by lenders to work through the situation with their tenants. With so many factors and nuances involved, amending a lease prematurely could trigger unintended consequences with other agreements and relationships. To avoid a potential misstep, here are 24 questions for landlords to consider before engaging in negotiations:
Tenant’s Failure or Refusal to Pay Rent
• Does a force majeure provision exist and does it actually apply (many don’t)?
• Can the tenant rely on arguments of impracticability or frustration of purpose?
• Is unilateral abatement or reduction of rent prohibited under the lease?
• Can rights and remedies be considered with various moratoria on penalties and evictions?
• Has the tenant applied for available Small Business Administration (SBA) resources or other support through the CARES Act?
• Is the lease gross or triple net?
• Who is responsible for interior maintenance?
• Which party has the duty to protect against damage to temporarily unoccupied space?
• How are responsibilities divided for proper protocols to prevent the spread of COVID-19?
• Is base rent being reduced or abated, but triple-net expenses/additional rent still being paid?
Ongoing Obligations to Pay Operating Expenses and Maintain Leased Space and Common Areas
• Has the tenant agreed to permit limited access to the common areas or the leased premises?
• Has the tenant agreed to waive claims against the landlord generally in return for relief?
• Do the excused interruption provisions apply or give the landlord broad rights?
• Is the tenant prohibited from invoking termination rights for interruptions in access?
delivery date obligations, renewals and options
• How are deadlines for completion of build-out by either party addressed?
• How are risks of building permit and Certificate of Occupancy issuances addressed?
• How are deadlines for use of tenant improvement allowances handled?
• How are fair market value determinations for lease extensions handled?
Right to Use and Occupy Premises and Common Areas
• Have the parties agreed to modified hours of operation provisions?
• Have the parties modified go dark or co-tenant provisions in the lease?
• Do other tenants have to consent to such modifications.
Prohibition Against “Going Dark” and/or Failure to Maintain Operating Hours
• Is lender consent required for the lease modification under loan documents?
• Do the lease modifications create a risk of other loan covenant defaults?
LENDER ISSUES
• Is the landlord properly handling quarantine, cleaning, delivery and construction issues in compliance with the ADA, OSHA and other regulatory requirements?
Landlord Responsibilities in Addressing a Tenant Who Has Tested Positive for COVID-19
These are just a sample of the issues arising with commercial leases in the age of
COVID-19, and navigating these complexities can be challenging.