CLIENT ADVISORY: COMMERCIAL LEASES DURING COVID-19 PANDEMIC

With the exception of certain essential businesses, such as supermarkets, clinics and banks, most businesses are either temporarily closed or operating partially or remotely.  As a result, many commercial and residential tenants are unable to pay rent, which places financial stress on landlords as well.  The CARES Act enacted a 120 day moratorium on foreclosures of residential mortgages backed by the federal government and on evictions from affordable rental housing, such as Section 8.  Several states, including Florida, have also enacted moratoriums on all residential evictions.  Florida’s moratorium on residential evictions expires on May 17, 2020.  It is yet unclear whether or not it will be extended.
Unlike other states such as New York, in Florida none of the aforementioned relief extends to commercial leases, which has left commercial tenants subject to eviction in addition to coping with lost revenue and employee layoffs.  Many businesses (both tenants and landlords) have yet to receive federal assistance under either the Paycheck Protection Program or the Economic Injury Disaster Loan Program, both of which are expressly meant to assist small businesses.  With both commercial tenants and landlords in legitimate financial distress, it behooves both parties to work together now more than ever to survive the present crisis.
Regardless of whether a lease is triple net, gross or some hybrid form, and regardless of whether the leased premises are retail, office, single or multi-tenant, tenants and landlords should communicate on options arising from a tenant’s temporary or permanent closure due to COVID-19.  Landlord options include seeking immediate enforcement (eviction or a guarantee), taking no action, or negotiating a payment plan with the tenant.  Under current conditions, eviction may be the least desirable option, as courts are operating at reduced capacity.  On March 24, 2020, the Florida Supreme Court suspended the requirement that the clerk issue writs of eviction, which effectively suspended commercial evictions. That order has been extended to May 29, 2020.  Furthermore, many landlords will be hard pressed to find suitable replacement tenants in the near term.  If the lease is guaranteed by an equity owner of the tenant, then in many cases the financial wherewithal of the guarantor will be tied to the financial capability of the tenant, making enforcement of the guarantee a less attractive recourse for the landlord.
If the tenant is unable to pay rent, the tenant should be prepared to make non-monetary concessions to the landlord in return for rent abatement, deferral or forbearance.  Concessions might include waiving certain rights under the lease such as the right to expand or right to renew; or the tenant could agree to an extended term of the lease.  Regardless of a tenant’s particular circumstances, communication and cooperation with the landlord is advisable.
If you have any questions about your business, please feel free to contact us.  If you would like to schedule a consultation by phone or video-conference, please go to:  https://calendly.com/coradinlaw
Posted in: Uncategorized.
Last Modified: May 14, 2020