Many commercial tenants are feeling the financial strain of making rental payments during the ongoing COVID-19 pandemic. For some businesses, it may not be possible to make the monthly rental payments. If that’s the case, there are many things tenants need to consider.
To begin with, some state and local jurisdictions are enacting measures in response to the ongoing crisis in order to help commercial tenants during this time. Here in Colorado, the City of Englewood directly addressed commercial landlords in a news release and advised them to offer rent relief to tenants. Other jurisdictions, however, are taking the lead and enacting temporary moratoriums to provide relief to commercial tenants. For example, the Mayor of Los Angeles ordered a temporary moratorium on commercial evictions. The temporary moratorium applies to tenants who are “able to show an inability to pay rent due to circumstances related to the COVID-19 pandemic.” As the COVID-19 pandemic continues, it will be interesting to see whether or not other local and/or state jurisdictions enact measures to prohibit the evictions of commercial tenants.
If a tenant is not located in a jurisdiction that currently has an eviction moratorium in place, then the tenant must look to the terms of its commercial lease to determine what relief, if any, is available. Notably, it is imperative that tenants understand the implications of not meeting their rental obligations under their commercial lease.
One place many tenants are looking to is force majeure clauses. However, this is not guaranteed to work. Force majeure clauses are often very specific as to what acts are covered and usually will specify whether or not rent can be suspended. In addition, courts tend to narrowly define when force majeure clauses can be utilized.
Another idea could be for the tenant to argue the defenses of frustration of purpose or impracticability of performance. The problem with this argument is that these common law concepts are usually narrowly defined by the courts and may not provide commercial tenants with immediate relief.
If a tenant is unable to look to the above measures for relief under the terms of their commercial lease, they can try to reach out directly to their landlord in an attempt to negotiate a reduced rental rate during this time. It appears that some landlords are more willing than others to negotiate a reduced rental rate; however, at a time when so many companies are under financial strain, it is in a landlord’s best interest to get some rental income rather than none.
In addition, some large companies are taking the stance that they either won’t be paying rent or there needs to be reduced rent during the ongoing pandemic. For example, Cheesecake Factory said it won’t be paying rent for April and Wendy’s is deferring rent payment on the properties it leases to franchisees by 50% over the next 90 days. This shows a growing trend that landlords should work with tenants on rent, especially at a time when so many companies are being stretched thin.
Fortis Law Partners has extensive experience in negotiating and drafting commercial leases and is well-positioned to provide guidance and answer any legal questions you may have regarding your commercial lease. For more information, please contact Alyson Jaen at ajaen@fortislawpartners.com.
