The coronavirus disease (COVID-19) outbreak will certainly stress many Landlord/Tenant relationships as commercial real estate Tenants will struggle to pay rent due to the interruption of their normal business operations. As a result, many Landlords will immediately feel the Tenant’s financial pain and may face their own challenges making their mortgage payments.
As indicated in my prior blog, countless Landlords and Tenants will be reviewing the fine print in their lease to examine whether or not “force majeure” language will allow them to shift some or all of the financial burden to the other party – at least as it relates to the issue of a Landlord’s right to receive, or a Tenant’s right to temporary avoid the payment of rent.
What might each party want to consider including in negotiations in the event a Tenant requires lease concessions from their Landlord in order to survive this crisis?
Tenants will obviously be focused on receiving immediate relief from payment of their rent obligations. In exchange, they may be willing to offer the Landlord an extension of the lease term or agree to other lease modifications that may be favorable to the Landlord.
Landlords will undoubtedly receive numerous Tenant requests for rent relief. They will likely put their initial focus on requests from their smaller and more vulnerable Tenants that do not have deep pockets. They should expect discussions to occur with their larger Tenants as well – especially if such larger Tenants have any sort of lease leverage or threat of bankruptcy that they can use against their Landlord in order to obtain lease concessions.
If you are facing a situation where negotiation of lease concessions may be appropriate, be sure to act in a timely manner and seek the advice of a real estate attorney and other professionals to make sure your actions are appropriate and don’t cause other problems for you down the road when this crisis is over.