The Coronavirus and Commercial Rent Payments
by: Riane N. Sharp
Many businesses have been faced with the exact same question, how are they going to pay their rent? The local and state stay-at-home orders have caused many businesses to close all together or suffer severely diminished revenue. Commercial landlords, on the other hand, are relying on tenant rent payments to meet their financial obligations. So, if you’re in a commercial lease and either cannot pay your rent or have a tenant who cannot pay its rent, what are your options?
The first step for both a landlord and a tenant faced with rent payment issues is to review the lease agreement. As a commercial tenant, one option is to seek to invoke the force majeure or impossibility of performance provision of your lease (if it has one). We previously discussed force majeure and O.C.G.A. § 13-4-21 (Georgia’s impossibility of performance statute) in a previous post. As a refresher, force majeure is French for “superior force” and often allows for non-performance under the contract when an unexpected “act of God” occurs. However, if the force majeure provision does not clearly list “disease”, “pandemic” or something similar as a grounds for non-performance, the ability to invoke the force majeure provision will likely be heavily disputed and possibly litigated in court. With many courts closed for non-emergency matters, there would likely be no resolution of the issue anytime soon.
So, what can you do now? The easiest answer is work together. Tenants should be honest with landlords about what they can pay and when and be prepared to provide financial records in support of their claims. Based on the parties’ unique circumstances, tenants and landlords can negotiate an agreement that works best for them. Some things to consider are:
- The extent of the impact to tenant’s business operations
- Projections of tenant’s financials through the end of 2020
- Anticipated or received local, state, or federal governmental assistance
- Whether the tenant has business interruption insurance that could cover rent
The landlord should also consider how difficult it may or may not be to replace a tenant during the pandemic, if they choose not to work with the tenant. There may be little reason to terminate a lease if a replacement tenant is not readily available to move in and start paying rent.
Since the tenant is the one who wants to make a change to the lease agreement, it should propose an alternative payment plan. Common options include rent deferment, rent abatement, applying security deposit to rent payments, or lease amendments. There is no one right way to handle rent payment issues during the COVID-19 pandemic.
If you have a concern about paying or receiving commercial rent or need help negotiating an alternative payment structure or terminating a lease, Winter Capriola Zenner is here to help.