Tenants and landlords are grasping at straws as they face a new world due to COVID-19. COVID-19 has been affecting brick and mortar businesses in ways we could have never imagined. Government-mandated shutdowns have been devastating to the economy, and commercial leases do not deliver what was promised to tenants and landlords, making them very vulnerable in this new world. Tenants who can’t or won’t pay rent is an issue many landlords are dealing with today. This affects landlords’ ability to cover their own carrying costs.
How Commercial Real Estate is Changing Because of COVID-19
These changes create a unique legal environment, where legal defenses provide relief or escape for tenants who would otherwise need to follow the leases’ terms without exception. Will tenants unhappy with their lease terms be unable to pay any rent at all. Will landlords be able to recover the payments due for the lease term?
Some tenants working remotely realize they have no need for physical office space and are looking to terminate their commercial leases. Others are returning to their offices, but seeking different terms for the duration that their offices were mandated to be closed or under utilized.
Force Majeures clause may aid some tenants.
A force majeure clause, depending on how it is written, may allow a party to be excused from some terms of their lease. A court will decide if an event qualifies for a force majeure under the lease. While few and far between, leases with language explicitly accounting for a pandemic will be easiest to resolve.
Co-tenancy provides tenants with protection if stores are not operating as described. Landlords may embellish traffic patterns and foot volume to lease retail space. If these patterns are not as promised, tenants have a basis to reduce their rent or terminate their leases.
Health and Safety Issues
As people return to brick and mortar buildings to work, we continue to face new safety precautions and procedures. COVID-19 regulations are placing a heavy burden on commercial tenants and how they comply with masking requirements and social distancing. Landlords may be responsible for modifying lease premises to make them safe from dangerous conditions. A landlord may be unable to make modifications to make it safe to return if there are unavoidable common areas.
COVID-19 and the Future
The full impact of the COVID-19 pandemic on commercial real estate won’t be known for some time, and a return to the world we once knew is unlikely to happen any time soon. It may be wise for them to introduce building regulations relating to common areas where a virus could spread and terms that relate to tenants’ compliance with CDC rules and regulations.
Many employees are working from home, reducing the need for office and retail space. Demand for office space will likely continue its downward trend. Landlords and tenants should think long-term about how the coronavirus will affect businesses and their financials.
The legal issues described are intended to be of a general nature. If any of the described issues apply to you, it is important that you do not rely on this synopsis, but consult with your attorney to see how the law applies to your situation.
Florida National Title Services
Florida National Title is available to help with many of your real estate needs. Florida National Title Services works under the supervision of attorneys Michele Lewis and Richard S. Weinstein, experienced real estate attorneys. They work to ensure the title of the home you desire is clear and marketable and that title insurance policies are properly issued.
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