Commercial Real Estate Leases and COVID-19 Ramifications

October 20, 2020

Commercial Real Estate Leases and COVID-19 Ramifications

Businesses across the country are continuing to feel the impacts of COVID-19 as we enter into the second wave of outbreaks with cold and flu season on the horizon. Though some small business owners are still involved in legal battles for small business interruption claims, others are facing another form of hardship–commercial real estate leases and rent payments coming due.

Navigating commercial real estate leases have often posed unique issues for tenants, but in the COVID-19 era, knowing your rights as you face these hurdles may be the difference between staying afloat or losing your storefront. The Scranton commercial real estate attorneys of Mazzoni Karam Petorak & Valvano are here to assist you.

Understanding Commercial Real Estate Leases During COVID-19

We’ve talked about how the execution of a commercial real estate lease can look in ordinary times; however, with COVID-19 flipping much of our world upside down, it’s hard to know what is standard protocol and what is simply an overreach of your landlord’s authority.

The pandemic has made it more important than ever for renters to carefully review and negotiate the terms of their commercial leases. With statewide mandates making many small business owners close their doors for months at a time and now operate at reduced occupancy, many are considering what options they have when it comes to paying rent.

Business owners are not the only ones hurting, as landlords have also missed out on rent payments, placing them in jeopardy for missed mortgage payments. While the Pennsylvania government has released grant opportunities for small business owners for some expenses, the reality is that many will still not be able to keep up with their rental agreements.

If this sounds familiar to you, there may be options for you to discuss with your landlord.

Commercial Real Estate Provisions

A buzz phrase in the commercial real estate market has been force majeure clauses which are sometimes included in real estate contracts when events outside of either party’s control impact their ability to hold up to the terms of the agreement.

While some states have already permitted the use of force majeure clauses to ease the burden of landlords and tenants, Pennsylvania law still narrowly defines the options available to renters, even if the clause is included in the contract.

Under case law, the party wishing to invoke force majeure clauses bears the burden of proving that the lack of performance and thus, ability to hold up the contractual agreement, was beyond their control.

Unfortunately, nonperformance that results from economic loss is typically not enough to enforce a force majeure clause. Also, COVID-19 has not been included in the “act of God” or natural disaster provision of such clauses. And while litigation is still expected in the months to come, landlords and tenants are encouraged to review the terms of their contracts and work out reasonable payments and measures to procure payment.

Depending on the terms of business interruption insurance the owner holds, such policies may also help alleviate financial burdens for small business owners.

Commercial Real Estate Leases and COVID-19

The Scranton commercial real estate attorneys of Mazzoni Karam Petorak & Valvano understand how difficult it can be to navigate and hold up the agreement within your commercial real estate lease during COVID-19 financial hardships. However, know that options are available to you, including terms within your contract you may not even be aware of.

If you have questions about your commercial real estate lease and the ramifications of COVID-19, contact us today. We will review your contract and work with you to negotiate the terms of a current or new lease.

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