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COVID-19 and Lease Negotiations: Casualty Provisions
The COVID-19 pandemic's immediate effect on commercial leasing was obvious. Businesses, compelled by executive orders to reduce in-person operations or even to cease operation altogether, looked for relief from their rental obligations. Commercial landlords, who were subject to a state-ordered eviction moratoriums but no corresponding state-ordered mortgage forbearance, faced the prospect of losing the income they needed to support ongoing expenses such as mortgage payments, taxes, insurance, and maintenance costs. Landlords, tenants, and insurance companies are still negotiating and litigating over how that financial impact should be apportioned.
But the pandemic is also having a longer-term impact on the way commercial leases are negotiated. Whereas in the past parties have not wanted to spend a significant amount of time discussing and negotiating events that seemed unlikely to occur, post-pandemic lease negotiations are placing a greater emphasis on seeking protection against such events. This article is the first in series that will examine specific aspects of this shift. Its focus is on casualty provisions.
|COVID-19 and Casualty Provisions
Standard casualty provisions in commercial leases often leave the term "casualty" undefined, loosely describing such events — which often result in a rent abatement or termination right — as a fire or "other casualty" that renders the premises "uninhabitable" (or "untenantable," "inaccessible" "unusable," or a similar descriptor), in whole or in part. Claims that the pandemic (and associated restrictions on business operations) constituted a casualty that would relieve a tenant of its rent obligations during the period when the tenant was not able to use its premises have met with mixed results in the courts.
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