Part Two: COVID-19

February 17, 2021 | Written by: Robyn Swihart, Owner

As counties and cities across the country lift restrictions and we face our “new normal,” retail tenants are cautiously exploring their real estate options. COVID-19 brought to the forefront the importance of pandemic protection in lease contracts. A previous blog post here touched on pandemic matters from a landlord’s point of view. This blog addresses the topic from the tenant’s side.

Tenants should seek protection in both the design, permitting and build out period, as well as throughout the term of their lease.  In the government sector, employees including planners are just now returning to work or perfecting remote work strategies.  As a tenant, be sure that in the short term you are not penalized, losing free rent incentives at the start of a new lease, for delays in review and approval of permits, capacity or trade restricted construction scheduling and materials shortages.  Simple alternation permits are taking up to ten weeks in some communities. Other construction projects have run past deadline due to local restrictions allowing just one sub-contractor onsite at a time. Consider asking for day-for-day credit for these delays during your LOI negotiations. Tie dates to events rather than committing to stated dates.   As an example, negotiate for your rent commencement date from receipt of permit instead of an actual stated date. These strategies will leave you less exposed to circumstances outside of your control. 

As an ongoing lease right, request that any future pandemic-related government mandated closures or capacity restrictions result in corresponding abatement or reduction of your base rent.  Let’s say you own a restaurant, and your county or state imposes a fifty percent capacity restriction and social distancing measures during a future pandemic event.  You contract could stipulate a fifty percent rent reduction of base rent during the period of the capacity limit, along with an automatic extension of the term of the lease for the number of months you pay this alternate (reduced) rent. Doing so will take the guesswork out of your rent obligations if a future pandemic arises.   A second strategy more likely attained by strong credit tenants is a full abatement of base rent during government shutdowns and capacity restrictions, coupled with a defined repayment period.  Let’s say in this case, a government shutdown or capacity restriction forces you to close for two months.  Your base rent would be fully abated for that period, and upon reopening you would have four months to repay the abated rent.  Suffice to say, there are creative ways to mitigate the risk of pandemics within your lease. Consult your attorney to discuss the best options available to you.

Without question, COVID-19 has reshaped the conversations taking place between tenants and landlords.  Remember that successful negotiations often take into consideration the challenges at the other side of the table.  As the popular expression goes, “we’re all in this together.”

Disclaimer:  This article should not be seen as legal advice.  Please consult your attorney before you rely on this information.