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covid19-01

COVID-19 +

Your Commercial Lease

Businesses across Hawaii and around the world have been significantly impacted by the Coronavirus (COVID-19) pandemic. These disruptions may have you concerned about how this affects your lease and wondering what you can do about it.

Here you will find answers to Frequently Asked Questions involving COVID-19 and your commercial lease, plus links to reputable websites to help you stay informed.

covid19-01

COVID-19 + Your Commercial Lease

Businesses across Hawaii and around the world have been significantly impacted by the Coronavirus (COVID-19) pandemic. These disruptions may have you concerned about how this affects your lease and wondering what you can do about it.

Here you will find answers to Frequently Asked Questions involving COVID-19 and your commercial lease, plus links to reputable websites to help you stay informed.

Frequently Asked Questions

To help provide information and guidance, here are answers to some frequently asked questions about how COVID-19 may affect your commercial lease:

  1. What if I am building out my space or my landlord is improving my space and COVID-19 causes construction delays?

You may be in the process of building out your space prior to opening for business. The COVID-19 pandemic could cause delays in construction projects. Although construction is considered an essential business under many government-mandated stay-at-home orders in effect, other sources of delay could include permitting delays due to closures of government offices and labor or supply-chain issues.

Most commercial leases include a deadline for completing tenant improvements. Failure to meet these deadlines could result in consequences such as daily liquidated damages or other penalties. In some cases, it may even trigger landlord termination rights. On the flip side, some leases require the landlord to construct certain improvements before delivering the space to you or to complete a repair or replacement of an improvement. In both scenarios, construction delays arising out of COVID-19 are a real possibility.

Practically, open communication and planning with the construction team, your landlord, and related parties will help minimize disputes. Often the parties can work together to resolve the issue by mutually agreeing to an extension of time to complete the work. Legally, you may have a defense for performance either by a force majeure provision in your lease or under other common law defenses (see response to Question #2 below).

  1. What is force majeure, and can I use it to excuse my performance of a lease obligation?

Many leases contain a force majeure clause. In the commercial leasing context, a force majeure clause usually extends the time for one or both parties to perform an obligation if an unforeseeable event beyond either party’s control prevents or delays the party from performing. For example, force majeure clauses typically cover “acts of God,” wars, strikes, and other similar events.

What constitutes a force majeure event is determined on a case-by-case basis and depends upon the language of the relevant lease, applicable law, and the factual circumstances at issue.

Generally, courts interpret force majeure clauses narrowly. Look to see if your force majeure clause covers “disease,” “epidemic,” “quarantine,” or “acts of government.” Many leases contain a more general catch-all provision (e.g., “any other event beyond the parties’ control"), which gives you room for interpretation. Some force majeure clauses are mutual (i.e., either landlord or tenant can invoke it) while others only benefit one party.

The nonperforming party will likely have to establish that COVID-19 caused the nonperformance. If other factors potentially contributed to the party’s nonperformance, force majeure may not apply.

Some force majeure clauses also require notice to be given to the other party within a certain amount of time after the force majeure event occurs. If your lease’s force majeure clause contains a notice requirement, it is important to strictly comply with it since failure to do so could lead to a waiver of the right to assert force majeure.

Finally, even if your lease does not contain a force majeure clause, there are other common law doctrines of impossibility, impracticability, or frustration of purpose that might apply to your situation and offer a possible basis for relief.

  1. WHAT IF I CANNOT PAY MY RENT?

It depends on the language of your lease and whether your landlord is willing and able to offer rent relief.

As a starting point, review your lease to understand your rights and obligations, including what provisions might be triggered by COVID-19.

Many commercial leases state that the force majeure clause does not apply to financial obligations like the payment of rent. In those situations, the force majeure clause would not excuse failure to pay rent when due.

Even in the absence of any clear-cut rights in your lease, you may still be able to negotiate rent relief with your landlord. If you are concerned about not being able to pay rent due to COVID-19, one option is to make an informal request to your landlord. Many tenants have been able to successfully negotiate workout agreements with their landlords.

One common mistake is starting the conversation too late. Negotiation takes time. Initiate discussions with your landlord as early as possible before the rent is due to give yourself enough time to negotiate and document the agreement.

COVID-19 is an unprecedented situation that impacts the commercial real estate industry on a massive scale. It is unlike anything we've experienced in our lifetimes. Landlords and tenants should try to be creative in structuring the terms of lease modification agreements and balancing the needs of both parties in light of COVID-19. Hopefully, landlords and tenants can work together to help one another get through this.

>> If you need help evaluating your options, contact us to learn more about our Ziva Lease Consult service, which can provide you with legal advice and guidance at an affordable fixed-fee. For a limited time, we are offering discounted pricing for COVID-19 related matters. Virtual conferencing is available to allow for social distancing so we can remain safe & healthy.

  1. If my landlord agrees to reduce or defer my rent or excuse me from some obligation under my lease, do I need to get it in writing?

YES! Make sure you document the agreement in writing.

Most commercial leases state that any modifications or amendments to the lease are not valid unless in writing and signed by the party intended to be bound. Therefore, to ensure that the terms you negotiated are enforceable, we recommend memorializing any agreed upon terms with your landlord in a written agreement that complies with any requirements set forth in your lease.

Because everyone’s lives are crazy right now, it may take some time for both parties to get around to formally documenting the amendment. In the meantime, at a minimum, try to document the agreement in an email to your landlord outlining the terms, with an email approval from your landlord.

>> We can help draft lease amendments to document COVID-19 related agreements or review lease amendments prepared by your landlord before you sign to ensure your interests are protected.

  1. Does my landlord have the right to restrict access to common areas or shut down my building or project due to COVID-19?

Many landlords are taking additional measures to ensure that the common areas in their buildings or projects are safe and sanitized in response to the COVID-19 health crisis. Depending on how the situation escalates, some buildings may need to shut down completely.

If you have questions about your landlord’s right to take specific actions regarding the common areas or your premises, review the applicable provisions of your lease to understand the scope of your landlord’s rights in this respect.

Commercial leases often give the landlord broad rights to control and manage the common areas and allow the landlord rights to enter your premises for limited purposes. If your building has been shut down completely or you cannot access your premises to operate your business, you may be entitled to rent abatement or other relief depending on the terms of your lease.

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If you need practical legal advice to navigate COVID-19 related issues contact us for a FREE 15-minute discovery call to find out if Ziva Lease Consult is a good fit for your needs.

For a limited time, we are offering special discounted fixed-fee pricing for our Ziva Lease Consult service involving COVID-19 related issues. Contact us to learn more!

U.S. Centers for Disease Control and Prevention (CDC)

The official website of the CDC, which provides current public health information about COVID-19 including symptoms, statistics, latest updates, and guidance to keep people safe.

U.S. Small Business Administration (SBA): COVID-19

The SBA provides information on financial relief options for small businesses including loan programs and other debt relief under The CARES Act to address the COVID-19 outbreak.

U.S. Internal Revenue Service (IRS): Coronavirus Tax Relief

The official IRS webpage dedicated to coronavirus tax relief, including extension of tax filing deadlines, economic impact payments, news releases, and other guidance.

Coronavirus.gov

A special purpose website that is a joint collaboration by The White House, CDC, U.S. Department of Homeland Security, and FEMA, with specific resources for travelers, households, pregnant women & children, people who are sick, small business owners, schools, businesses, healthcare professionals, laboratories, and emergency management.

U.S. Department of Justice

The official website of the United States government addressing detection, investigation, and prosecution of wrongdoing related to COVID-19, including reports on price-gouging, fraud, and other scams.

State of Hawaii Department of Health

Official website for the State of Hawaii Department of Health, Disease Outbreak Control Division (DOCD) coronavirus COVID-19 response. Provides information including regular updates, Hawaii daily case counts, symptoms of disease, and prevention. You can sign up for free COVID-19 email updates to receive the latest information from the State on how the coronavirus is impacting Hawaii.

Chamber of Commerce Hawaii: COVID-19 Response Hub

The Chamber of Commerce Hawaii offers a wealth of resources to advocate for the interests of Hawaii businesses in the midst of the COVID-19 pandemic. Includes information about relief programs, petitions to support local business, and webinars on COVID-19 assistance.

Coronavirushawaii.com

A local grassroots website to help provide resources for Hawaii. Includes a searchable database of businesses in Hawaii that will remain open with their latest information so you can list your business and support other businesses. It also offers ways to support kupuna and healthcare workers on the front lines as well as volunteer opportunities in our community.

© 2020 ZIVA LAW LLLC, ALL RIGHTS RESERVED. These materials have been prepared for informational purposes only and do not constitute legal advice. This information is not intended to create an attorney-client or similar relationship. Please do not send us any confidential information. Whether you need legal services and which lawyer you select are important decisions that should not be based solely upon these materials.