COVID-19: Challenges Facing Commercial Property Owners

Commercial property owners are faced with navigating in a coronavirus world where buildings sit empty, businesses struggle to pay their bills and the nation’s economic future appears murky.

Many are bracing for a COVID-19 fallout and asking their attorneys and insurance brokers for help with possible risks. These tips will help property owners and landlords manage through these difficult times, creating uncertainty about the health and wellbeing of individuals, businesses and communities.

Handling Lease Payments
How a property owner addresses tenant payments during the COVID-19 pandemic is an internal decision. Whatever the approach, it’s important to remain transparent with tenants.

Communicate
Landlords and tenants should be actively communicating with each other during the COVID-19 pandemic. The tone of the communication should be friendly and informative. It’s not a time to engage in disputes. Instead, landlords and property owners should provide information and resources and be available to answer questions tenants about lease agreements and payments.

Infections on Commercial Property
The concern of building owners is whether property owners can be held financially liable if a tenant, a visitor or a patron — claims they were infected by the coronavirus while visiting or working inside a landlord’s premises. Property owners should proactively review their obligations, communicate clearly with their tenants, and stay informed about the latest developments and their impact on their employees, tenants and properties.

Insurance Coverage
Just as many businesses have insurance so do most commercial property owners. Now is the time to review that policy and see what kind of coverage you have to cover the loss of revenue. Often, an attorney can help determine what kind of claim can be submitted based on revenue loss due to business interruption.

Force Majeure Provision
The force majeure provision excuses a party from performing its obligations under a lease if an event occurs that is beyond control. What events fall under such a provision? A labor shortage, strike, terrorist act, natural disaster or other acts of God are common events often listed under a force majeure provision. Whether a pandemic qualifies as a force majeure depends on the contract and its interpretation.

Retail Leases and Operating Covenants
Many retail leases feature “operating covenants,” which obligate tenants to maintain certain business hours or operate their businesses for a specified minimum amount of time. A quarantine prevents a tenant from operating in the leased premises will likely affect their ability to comply with the operating covenant.

Co-Tenant Losses
If a tenant has a co-tenant, landlords are subject to the effects of such co-tenancy provisions if co-tenants stop operating due to the spread of COVID-19.

Resources

American Land Title Association (ALTA) has provided the following resources:

National Association of Realtors resources
National Real Estate Investor
National Law Review

If you have any questions regarding the COVID-19 outbreak and its effects on the commercial real estate industry, please contact a member of the Winston Law Firm.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these blog posts may change on a daily basis. Please contact the Winston Law Firm for timely advice.