Guidance for Commercial Real Estate

The coronavirus pandemic continues to impact the real estate industry, from brokerage operations to marketing listings and closing transactions. NAR is providing guidance to some common transactional questions, based on the current directives from the WHO, the CDC, and the White House. All members are encouraged to stay informed by regularly visiting the CDC’s website(link is external).

In deciding how to address new issues that may come up in their day-to-day business, NAR urges members to find answers that will ensure first-class services to their clients, while also demonstrating care for the health and well-being of clients, agents, and the greater public welfare in reducing the risk of exposure to and spread of COVID-19.

This is general guidance only. Members should consult their brokers, legal counsel, and government-provided public health information.

If a tenant, visitor or employee has tested presumptive positive or positive for COVID-19, issue a building alert to other tenants, residents and others who share facilities.  Report the matter to the local health agencies and be sure to follow directions regarding cleaning and other appropriate actions.  Be careful to neither reveal the identity of the individual nor an affected company because of health privacy and other legal considerations.

They should be provided training on protocols for wearing protective gear, sanitizing tools and equipment, and proper disposal of gear and materials that may have been exposed to COVID-19.

As long as everyone who enters the building are asked the same questions this should be fine.  Some appropriate questions could be:

• How are you feeling today?
• Have you recently been in close contact with someone or attended an event where there has been a confirmed case of COVID-19? 
• Have you recently traveled anywhere?

Consider adopting a protocol where a few appropriately protected people handle and deliver the mail or establish a mail schedule for smaller groups of people to collect their mail.  And be sure to increase disinfection efforts in between each group’s time.

Review the lease, specifically, you will want to check the Force Majeure, Casualty, and Condemnation/Eminent Domain provisions.  Depending on the language, these provisions can give the landlord or tenant certain rights to excuse, suspend or terminate obligations or services.

A force majeure clause generally permits parties to suspend or terminate their obligations due to certain circumstances beyond their reasonable control. In the context of COVID-19, look to see if the force majeure clause enumerates circumstances such as “disease,” “epidemic,” quarantine,” “acts of government,” and “pandemic.”  If the force majeure clause includes broad general language such as “any cause whether similar or dissimilar to the foregoing,” it is likely to cover circumstances that are not specifically enumerated in the provision.

A casualty clause usually covers fire, flood, explosions or other similar occurrences that degrade the physical or structural integrity of the building.  A tenant might look to this clause on the basis that their ability to operate their business or to use their lease space has been significantly disrupted by the COVID-19 pandemic.

Tenants in buildings and spaces that are directly affected by government closures may view their lease spaces as being taken over by the government.  Check to see if the lease addresses condemnation or eminent domain and whether it provides any termination or rent abatement rights.

If the lease contains an insurance requirement, you will want to check whether it states when and how each party’s insurance is triggered.  The provision may specify circumstances where only one party’s insurance would apply or where the insurance of both parties apply, or neither policy will apply.

A landlord should have the right to deliver a notice of monetary default, and possibly the right to accelerate all lease payments with possible immediate recourse to guarantors and/or letters of credit.  This action will require the tenant to defend its decision.  It is important to note that some states have a moratorium on commercial (and residential) eviction proceedings.

A landlord has financial responsibilities so it wants to be sure that any relief or assistance provided is to a tenant who actually needs help and not one who is just trying to exploit the situation.  Using a rent assessment application, like the one provided by SterlingCRE Advisors(link is external) can provide information about the tenant’s situation and help determine what type of relief is needed.  A landlord should not feel obligated to provide relief to any tenant who is in default.  And tenants should be encouraged to seek assistance from government relief programs and their franchisor, if applicable.  If a tenant submits a rent relief request, try to respond as soon as practicable to avoid potential vacancies.

With the landscape rapidly changing due to the COVID-19 pandemic, discussions or relief should be limited to 30 to 60 days.  This allows the landlord to monitor the situation and to consider any new circumstances.  In terms of relief, try offering the tenant rent deferral instead of a rent waiver.  Another option could be using the tenant’s security deposit in place of a month’s rent and to have the tenant repay the deposit over time.  Be sure to check with the lender and attorney before offering any relief to confirm that it is permissible.

Be sure to keep documentation of all rent relief, adjustments and other types of assistance provided to tenants.  Also, be sure to have the tenants agree to a confidentiality clause.

Parties negotiating leases or new contracts should pay close attention to the force majeure clause and consider including “disease outbreak,” “epidemic,” “quarantine,” “acts of government,” “pandemic,” and others of the like as force majeure events.On the flip-side, if the parties want to carve out an exception about the effects of the COVID-19 pandemic, then specific language stating such should be incorporated.

With everything that is happening due to the pandemic, parties should assess appropriate actions with the knowledge that it is sure to be delayed and lag time in seeking any legal recourse to resolve disputes.  The federal and state government have been announcing plans or intentions of providing emergency monies to assist businesses to survive through this pandemic.  Therefore, parties working together to find solutions together to keep leases and relationships intact may be the best practice!