COVID-19 has had a giant impact on our way of life, though
at his point that doesn’t need to really be said. But with every day that
brings us a new normal that we have to adjust to, it also brings new
repercussions. That is also true for the commercial real estate sector,
particularly commercial real estate investors and users.
As more and more businesses begin to shut their doors to
work from home, or because of government mandates, questions have begun to
arise for both owners of commercial spaces and their tenants. The biggest
question of all, “do tenants have a right to stop paying rent due to the
coronavirus?” This is a complicated question, one that, depending on how long
the pandemic lasts, might be answered by the state, if not federal, government.
The answer to the question is, in most cases, no. Whether a
tenant has a right to stop paying rent due to “force majeure” or any other
number of clauses is ultimately based upon the specific language and terms laid
out in each specific lease agreement. This, though, does not take into
consideration if a floor or entire building is closed down by either the
property manager or owner. Before mandating a floor or building closure,
landlords and property managers should carefully review all possible impacts
that decision could have.
While the legalese of each specific lease will ultimately
determine whether a tenant is required to pay rent, landlords and tenants
should still review their leases to ensure they understand their rights in
these unprecedented times.
At the end of the day though, due to the stress that
many tenants, especially those in retail and hospitality, will be feeling at
this time, the government may see it fit to step in and take extraordinary
measures to ensure that businesses and people survive the financial impacts of
the pandemic. For multifamily owners and tenants there have already been
discussions within government of suspending rent payments, and some states,
including New Hampshire, have already suspended evictions. This is also
inclusive of commercial evictions as well.
The most important thing for tenants and owners to do right
now is open up communication channels to discuss issues both tenant and
landlord face, and come up with creative solutions that benefit both parties.
For example, relaxing enforcement of continuous operation covenants, or, if a
tenant comes to a landlord needing rent relief, entering into short-term
arrangements that provide partial base rent abatement.
While challenges do indeed lay ahead, they can be overcome.
By understanding that we are all feeling financial and personal stress right
now, and finding ways to work with each other, we can come to a common ground
that is fair to both parties. Taking this approach in life, and in real estate,
will make dealing with the effects of COVID-19 at least a little easier to handle.
