Commercial lease clauses that provide for rent abatement generally fall into five categories:
- Force Majeure. Most Force majeure clauses specifically require payment of rent during the force majeure event. So even if a pandemic or declared national emergency constitutes a ‘force majeure' event, the tenant is still obligated to pay rent.
- Damage or Destruction (Casualty). These clauses pertain to structural damage to the premises and not to economic damage due to quarantine or pandemic. Unfortunately, government-mandated quarantines do not qualify as damage to the premises.
- Eminent Domain or Condemnation. These clauses pertain only to government takings of the property. Government-mandated quarantines or travel restrictions are temporary and do not constitute ‘eminent domain' or ‘condemnation', particularly in situations where states have not declared a state of emergency.
- Landlord breach. Tenant may set-off, escrow, or abate rent due to Landlord breach, however, quarantines, travel restrictions, and pandemics are not caused by Landlord breach.
- Landlord's disruption. These clauses abate rent only when Landlord's alterations or repairs to the building render Tenant's space unusable or partially unusable.
If you have a force majeure provision in your lease, it will almost certainly provide that rent is still due during a force majeure. However, if your lease is silent as to force majeure all together, the tenant could look to common law remedies such as the doctrine of impossibility or the doctrine of frustration of purpose to leverage a request to the Landlord for abatement or postponement of rent during any periods the business is required to be shut down due to COVID-19. Contract ambiguity favors tenants, not landlords.
However, if the tenant has provided the landlord with a personal guarantee (as is standard), this will significantly weaken an argument for impossibility or frustration of purpose because the guarantee demonstrates the parties' intent to ensure payment of rent under all circumstances by either the tenant or the guarantor.
If your business is struggling due to COVID-19, our best advice is to begin having conversations with your landlord about any projected cash flow issues and possible rent abatement - as soon as possible. Mention any leverage your lease contract might offer with the goal of getting an agreement both you and the landlord can live with, understanding that your relationship with your landlord is a paramount consideration and a key factor to ensuring your business' success. Make sure any concessions get reduced to writing, addressing all late fees or interest.
The early bird (tenant) typically gets the worm when it comes to abatement.
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