Coronavirus and Force Majeure: Questions Remain
A few weeks ago, my partners, Jennifer Drake, Steve Mezer, Jon Polenberg and Patrick Howell and myself, held a webinar, A Multi-Disciplinary Look at Force Majeure in the Age of COVID-19. After the webinar, I had the opportunity to review the questions that came in via the chat that we didn’t have time to answer directly. Some of these questions are ones that I still am answering on a regular basis.
Q: “My commercial lease has a force majeure clause that includes pandemics and I have properly put my landlord on notice. Do I need to make up past rental payments later? Does my landlord have the right to force me to extend my months out of the office? My landlord offered to extend my lease. What are my rights and obligations?”
- This is a complicated, multi-part question. First, if the force majeure clause has pandemic language, whoever drafted it, assuming it was signed prior to the coronavirus, was forward thinking. However, I would be beyond surprised, in fact, flabbergasted, if the force majeure clause excused the tenant from payment of rent. Therefore, to answer the first parts of this question, I would have to review the lease to determine whether: 1) rent would be unilaterally excused, and if so 2) whether it would thereafter have to be repaid. If so, the missed rent would be deferred and if not, it would be abated. As to the second part of the question, pursuant to the governor’s order that all non-essential businesses must close, yes, the landlord has the right to close the building, keeping the tenant out of its office. A skeleton crew may have access to the building for important functions such as accounting and receiving. The tenant will have to wait until the executive order is amended or rescinded. Finally, tenants’ options as to what to do are to negotiate, be it for an extension, rent deferral, abatement or some other result that works for both landlord and tenant. The four corners of the lease will guide, but not resolve the situation. An amendment, agreeable to both, will be the only solution.
Q: “Since, at this moment, a residential tenant is not able to pay rent, do you really think it is wise for a tenant to cancel his/her lease? Wouldn’t it be more difficult for them to try to find a new apartment and come up with first, last, and security? What else in a lease can help a tenant reduce rent until everything goes back to normal?”
- I think that it would be a bad idea for any residential tenant who can’t pay rent to cancel their lease unless they have a place to go and live rent free, like with a relative. During the crisis, there are moratoria in place, on federal and state levels, which prohibit evictions. These are set to expire soon, and it is not clear whether they will be extended. However, tenants should be using this time to work with their landlords on payment plans that are agreeable to both parties and which will allow the tenant time to get back to work while making some payment to the landlord.
Q: “We are a tenant. Everyone is remoting in right now and not travelling to the office. We still want physical space but don’t need as much space as we currently have. What options do we have?”
- Again, negotiate with your landlord. A common option in this situation, that applies regardless of the coronavirus situation, is to offer a lease extension in exchange for space reduction. If you are currently paying your rent on time, your landlord will be very amenable to working with you. A paying tenant signed for a longer term is good for business.
We can help you with these and other similar situations. Please call with your questions.