Now that state governments are allowing businesses to reopen—while keeping social distancing policies in place—commercial landlords and tenants are sure to face new operational issues, which could lead to litigation. Below is a table summarizing some of the existing issues landlords and tenants have been facing and new issues they may face. Be sure to review your leasing documents, understand applicable government orders, and plan accordingly should operational issues arise in this new environment.
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Lease/Common Law Concept
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Issue/Questions/Concerns
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Force Majeure Clause
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Tenants and landlords may use as an excuse for nonpayment of rent or nonperformance of other lease obligations. Most current clauses will not excuse rent payments, but broader provisions may be negotiated.
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Reduction in Common Areas/Amenities
Outdoor Expansion
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Landlord’s imposition of restrictions on the use of common areas or closure of common areas (e.g., gym) potentially may constitute a landlord default or entitle tenant to specific remedies, e.g., rent abatement, adjustment in common areas maintenance, operating expenses reimbursement, or right to assess daily penalties.
Landlord’s permission of expanded outdoor eating and sales areas and curbside pickup may violate leases or covenants and result in similar penalties as above.
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Operating Expenses
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Landlord’s ability to recover costs of enhanced cleaning measures and regulatory compliance.
Landlords will need to ensure that such costs are recoverable.
Are there any caps on annual operating expenses increases?
Specific exclusions to operating expenses?
Is landlord required to provide services or does landlord have discretion to provide such services?
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Interruption of Services and Landlord’s Obligations
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What happens when landlord fails to provide services because of closures?
Can social distancing measures amount to a material disruption in certain cases?
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Co-Tenancy/Operating Covenants
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Certain tenants may have the right to terminate (or rent abatement is triggered) if a certain number of other tenants have stopped operating.
Differentiate between required shutdowns due to lockdown vs. stores shutting down in the near future because they can’t continue business.
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Permitted Uses/Exclusive Uses
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A tenant may need to adapt its current use to one that is outside the scope of the lease in order to continue operating.
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Alterations
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Requests by tenants to make alterations in the leased premises to effect social distancing.
COVID-19 delays on construction of improvements by either landlord or tenant.
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Common Law Excuses
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Frustration of purpose; impossibility; constructive eviction.
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Information is changing daily and some of the content included in this alert may have changed or been updated since publication.
Click here to read more Brownstein alerts on the legal issues the coronavirus threat raises for businesses.
This document is intended to provide you with general information regarding employee benefits issues. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.