COVID-19 BUSINESS IMPACTS: WHAT COMMERCIAL TENANTS CAN DO WHEN STRUGGLING TO MAKE RENT

| Apr 15, 2020 | Firm News |

The COVID-19 pandemic has challenged all businesses. For many, the challenges include sudden loss of revenue, causing inability to meet their commercial lease payments. Commercial tenants should consider their legal rights and remedies, the opportunity to seek relief from their landlords, as well as taking advantage of government loans, tax relief, insurance, and other forms of assistance.

Commercial tenants should carefully review their leases to assess their legal rights and remedies in light of the pandemic. Force majeure provisions may allow them to defer lease payments or other performance obligations temporarily, although many of these provisions expressly do not excuse payment of rent. The lease may contain other terms that provide rent relief if the tenant is unable to operate at all or use the leased premises for its intended purposes. If the lease includes provisions that you think may be helpful, immediate written notice to your landlord is advised.

Even if the lease does not contain explicit terms that provide relief, tenants may be able to avail themselves of common law principles such as frustration of purpose, impracticability and/or impossibility to seek relief from lease obligations. When evaluating whether these principles can offer relief, careful consideration must be given to the extent to which a tenant’s business has been interrupted—as some may be have been forced to completely close as non-essential, while others (such as restaurants) may be operating on a more restricted basis, and still others may be fully operating as essential businesses.

There are many other forms of assistance that commercial tenants should be seeking. A place of business is critical to any business, so finding ways to maintain a lease is as important as payroll. For small businesses, SBA loans such as the Paycheck Protection Program[1] (PPP) may be available. PPP loans can be used to pay rent, and are largely forgivable if the business is able to retain employees, meaning that the government may give tenants the money to pay rent for up to two months. In addition, other SBA loans and grants such as the Economic Injury Disaster Loans are also available. Tax credits and other tax relief opportunities such as payroll tax abatement are now available to assist businesses and should be taken advantage of. Lastly, commercial tenants should review their insurance policies for coverage of losses due to business interruption.

If a commercial tenant still finds making rent payments are beyond reach, it should immediately contact its landlord and seek ways to negotiate a deferral arrangement. Landlords generally don’t want to lose tenants in the long run and may be willing to agree to reasonable payment plans, rent deferrals or other agreements that will assure that tenants remain in place.

This is not intended to provide legal advice. Each business should seek legal advice specific to its individual circumstances. LimNexus lawyers are available to answer your questions. You may contact the LimNexus COVID-19 advisory group ([email protected]) or contact any LimNexus attorney via www.LimNexus.com

[1] The Paycheck Protection Program is a part of the CARES Act, and can be found here.