Finding Common Ground In Lease Provisions During COVID-19

The coronavirus has fundamentally altered our lifestyles, working conditions and our consumer-driven economy. It has devastated certain retailers, crippled others and, as a consequence, caused landlords and tenants to re-think (and, in many cases to renegotiate) their short-term and long-term contractual relationships. This article seeks to examine key current issues, and offers practical advice to landlords and tenants seeking common ground to address the ongoing financial toll of the pandemic, and suggests approaches that should be considered when drafting and negotiating lease provisions such as force majeure, early termination rights and co-tenancy obligations.

The Pandemic's Effects

Landlords and tenants are breaking established conventions to try to assure their survival. These efforts focus on the common theme of full or partial abatement of rent payments during periods of mandated closure or to afford relief due to diminished sales performance or a tenant's inability to fully utilize a leased premises. As numerous tenants in retail and office centers seek or require fiscal relief, landlords should be mindful of their loan covenants if the property is financed. Rent deferments, abatements or long term rent restructuring may trigger lender consent requirements or may simply be forbidden under applicable loan documents. Similarly, a careful analysis of loan covenants such as debt service coverage ratios and loan to value requirements should be undertaken to determine whether property that is financed remains in compliance with financing constraints and whether leases will, once modified, qualify if and when refinancing becomes necessary.