Guidance for Commercial Real Estate
LOUISIANA REALTORS • April 3, 2020
Information provided by:
Patricia B. McMurray, JD and Melissa Grand, JD,
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
450 Laurel Street, Chase Tower North, 21st Floor Baton Rouge, Louisiana 70801
COVID-19 and its long-reaching effects continue to change the way we conduct our everyday business, and commercial real estate practitioners continue to adapt to these changes on a daily basis.
Transactional 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.
What should a landlord or property manager do if someone has tested presumptive positive or positive for COVID-19?
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.
Do special instructions need to be given to building maintenance or housekeeping services?
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.
Can individuals who enter the building be asked questions related to COVID-19, such as about symptoms, exposure or recent travel?
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?
Questionnaire answers only should be used to determine whether additional precautionary measures should be taken or alternative measures should be used. The answers must not be used to deny someone's employment or services.
My building has a common mail room. What should be done about mail and packages?
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.
Will parties be excused from performing their services or obligations in the lease due to the COVID-19 pandemic?
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.
Which party’s insurance is triggered by the claims arising from the COVID-19 pandemic?
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.
What should be done if a tenant just decides to stop rent based on a theory from a lease provision or any other reason?
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.
Does rent relief or assistance need to be provided to any tenant who requests it?
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.
What relief should be provided to tenants seeking assistance?
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.
How should I keep track of rent relief and assistance that is provided to tenants?
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.
We are in the middle of negotiating a new lease, is there anything different we should do considering the COVID-19 pandemic?
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.
Any recommended practice for resolving disputes?
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!
ALWAYS COMPLY WITH LOCAL AND STATE GOVERNMENT ORDERS REGARDING CORONAVIRUS-RELATED RESTRICTIONS.
NAR’s latest consumer guide, “10 Tips for Unpacking Smartly After a Move,” was developed to help ease the burden buyers may feel when surrounded by boxes. For your clients on the cusp of a move, the guide suggests establishing a priority unpacking order, wiping down each room before unpacking, discarding boxes quickly, having garbage and donation bags at the ready, and more. Share the new guide along with the companion guide “10 Tips for Packing Smartly for a Move.” As a reminder, all guides in this series are available for download—in both English and Spanish—on facts.realtor . Please allow up to two weeks for the Spanish version of the latest resource to be translated and uploaded. For ease of reference, below is a list of the most recent guides: NEW: 10 Tips For Unpacking Smartly After A Move UPDATED : Multiple Listing Services Overcoming Roadblocks to a Sale or Purchase How Solar Impacts a Real Estate Transaction Navigating Interest Rate Shifts Thank you for your continued engagement with the “Consumer Guide” series and for sharing the resources with prospective clients to ensure they have the information they need to find success in their home buying or selling journey. Remember that these guides are for informational purposes only and are not meant to enact or change any existing NAR policy. Check out the next consumer guide on identifying homebuying wants vs. needs.
Thinking about buying a home? Discover how homeownership can help build wealth, increase financial stability, and create lasting value.
From the Louisiana Department of Insurance: During a press conference today with Governor Jeff Landry, Insurance Commissioner Tim Temple announced that registration for the next round of the Louisiana Fortify Homes Program (LFHP) will open at 8 a.m. on Monday, June 1, and will include 3,000 grants. The registration period for this lottery will be open for three weeks, closing at 5 p.m. on Friday, June 19. During the press conference, Gov. Landry signed HB 1187 by Rep. Paul Sawyer, which will allow Louisiana Citizens Property Insurance Corporation to transfer $50 million in additional Katrina bond assessment funds to the LFHP. Combined with the $30 million in funding the program will receive through taxes and fees on insurance entities, the LFHP will receive a total of $80 million this year. “By lowering overall losses, we can reduce insurance and reinsurance costs, draw more insurers into the market, motivate existing companies to write additional policies and lower insurance premiums,” said Commissioner Temple. “That is exactly what the Louisiana Fortify Homes Program is designed to do.” The list of coastal parishes that are eligible to participate is expanding to include Acadia, Jefferson Davis and Lafayette parishes. Additionally, homeowners who live in the portions of Ascension, Calcasieu, Iberia, Livingston, St. Martin, St. Tammany, Tangipahoa and Vermilion parishes that were previously not included in the program will now be eligible to participate. A map showing the full list of eligible parishes is available on FortifyHomes.La.Gov . “Louisiana is the fastest growing state in the country for Fortified roofs, and that growth is not by accident—it is the result of strong support from Governor Landry and legislators like Chairman Talbot, Chairman Firment and Representative Sawyer, targeted program design, and a clear recognition that strengthening homes is one of the most effective ways to reduce insurance losses,” said Commissioner Temple. “At the end of the day, this program is about more than just roofs. It is about protecting families, it is about strengthening communities, and it is about putting Louisiana in a stronger position—both physically and economically—to face the challenges ahead.” To participate in the lottery, homeowners must register during the June registration period. Homeowners who registered for a previous round but were not selected must register again to participate. People who register on the last day of the registration period have the same chance of being selected as those who register on the first day, so there is no need to rush to register as soon as the period opens. When registering, homeowners will need to upload their homestead exemption, insurance policy declarations page that includes wind coverage, and flood insurance declarations page if the residence is in a flood zone. Homeowners who need assistance obtaining a copy of their homestead exemption should contact their parish tax assessor. Homeowners can contact their homeowners and flood insurance companies or agents for a copy of their policy declarations page. Homeowners are required to create a profile in the LFHP system before registering for the lottery and may do so by visiting the LFHP website and clicking the Login button. Homeowners who previously created a profile may use the same one for this and future rounds. Once the lottery registration period closes, the LFHP will randomly select 3,000 participants and send email notifications to registrants about whether they were selected to participate. These selection notices will be sent via email beginning on Monday, June 22. There are several program requirements that homeowners should be aware of before registering. Those interested in the program are encouraged to review eligibility information and frequently asked questions at FortifyHomes.La.Gov to determine whether their home meets the requirements for the program. If selected to participate in the grant program, homeowners will be financially responsible for having the home evaluated by a FORTIFIED-certified Evaluator as well as costs for the roof upgrade including permits, inspections and construction costs beyond the amount of the grant The LFHP provides grants of up to $10,000 for homeowners to upgrade their roofs to standards set by the Insurance Institute for Business & Home Safety. The program helps Louisiana homeowners strengthen their roofs to better withstand hurricane-force winds.
