Preserving Your Commercial Lease Through COVID-19

Below is the text of an alert that we sent to our clients. We are re-posting on our blog.

Dear Clients and Friends,

These are no doubt trying times for all of us personally and professionally. While there are many items to focus on, the purpose of this email is to address your commercial lease obligations and things you can do to put yourself in the best position possible.  The first of the month will be here before you know, and regardless of whether April rent is a concern, you should be prepared to think ahead.

Insurance.  At this point, our insurance experts tell us that business interruption insurance will likely not provide relief.  Business interruption insurance generally covers physical damage to your space.  However, that is not to say that it is not without value.  It is unclear what action the government will take to restrict movement and this may impact your ability to make a claim, especially if your business interruption policy covers “governmental action”. It is a good idea to locate your insurance policy and coordinate with your insurance broker as to the coverage you have.

 
Speaking of the Government. Government programs are constantly evolving.  New York City has announced assistance for small businesses which can be found here:
https://www1.nyc.gov/site/sbs/businesses/covid19-business-outreach.page
We will continue to monitor the availability of Federal, State, and
City programs.

Force Majeure Provisions. Force majeure provisions in a lease are on a case by case basis and you must familiarize yourself with the terms of your lease.  Generally speaking, the obligation for a Tenant to pay rent is not covered by force majeure and these clauses usually cover non-monetary obligations like work to the space, move in/move out, etc.  For any force majeure provision it is necessary that you provide notice, even if circumstances are obvious.

Create an open dialogue with your Landlord. Look to abate or defer your rent obligations.  An abatement is a complete reduction in rent, and a deferral is agreeing to pay the rent you owe over a later period of time.  Everyone is aware of the current situation, and keep in mind that your Landlord has a mortgage obligation to pay on the first of each month that isn’t going away. Even with declining interest rates, a Landlord cannot refinance without likely incurring a large prepayment penalty.  Your Landlord has the same concerns about their business as you do. Be open and honest.  If you are a retail tenant, recognize that your Landlord will have an especially hard time finding a new tenant. 

Limit your downside.  If you have a corporate or personal guaranty, familiarize yourself with it now.  Be prepared with the notice provision if you need to surrender your space in the worst of circumstances.

In commercial lease transactions, we provide the legal advice and strategy to maximize your profit and that extends through the end of your lease.

Please feel free to reach out if you have any questions.