The coronavirus crisis is having a devastating economic impact on every aspect of the economy. Owners of leased commercial property should start acting proactively to protect their interests. All need to start considering how this crisis will impact tenants. At times such as this, it is critical that owners and landlords understand their rights and obligations.
Cities and states around the country are instituting moratoriums on evictions and foreclosures. At this point, such moratoriums are limited to residential property. However, with the efforts of government at every level concerned with protecting businesses as well as individuals, it is not out of the questions that such measures could eventually include commercial property. As of March 23, 2020, Ohio has not passed a moratorium, however, Cleveland City Council President Kevin Kelley has announced that Cleveland will suspend evictions due to coronavirus hardship caused by the impact of the coronavirus.
An updated review of lease agreements is necessary to determine the duties and obligations of a commercial property owner. Some important questions include:
- Is the current crisis covered by a force majeure clause?
- Has your client been shut down by governmental order and is that order an exemption from any default under the Agreement?
- Are SBA disaster relief loans available for tenants to receive working capital loans for fixed expenses, including rent?
As this crisis develops, owners and landlords should open the lines of communication with their tenants. It may become necessary to negotiate agreements to amend or modify lease agreements with tenants to ensure that all parties involved are able to meet their duties and obligations to each other.
If tenants are unable to meet their obligations due to economic disruption, it may become necessary for landlords to consider rent relief, as appropriate. Landlords may consider short-term arrangements that provide partial base rent abatement, with or without interest, and that expressly states reinstatement dates and a repayment schedule. Landlords could incorporate concepts that allow the landlord to recoup some lost rent when the economy rebounds, perhaps through a percentage rent concept or other profit-sharing method. A short-term forbearance on collection of rent in exchange for an increased rental term, presumably when rentals have increased, is also an option.
Now is the time to be proactive. Open and frank communication will prove essential in weathering the current crisis. Our Firm is encouraging our clients to get out in front of this now to help ensure a smooth and efficient recovery in the days to come. Please contact your counsel at WHP to assist in this process.
This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.