Coronavirus and Commercial Leases
If you or your business is responsible for a commercial lease and are experiencing difficulties due to the economic slow down and you haven’t already chatted with a lawyer about your options, you should do so immediately and note the following:
- Most commercial leases will have a “force majuere” clause that excuses non-performance of the lease in the case of things like floods, hurricanes and governmental action- which COVID-19 may (should?) qualify for.
- Also ask about “frustration of purpose” which can allow for non-performance based on unforseen circumstances that make performance impossible.
- Look into details about business loans and grants from the U.S. Cares Relief Act which is providing hundreds of billions of dollars for U.S. Companies small and large affected by the Coronavirus.
See a great summary explanation below from Law firm Phillips Nizer:
“Many businesses have been adversely affected to an increasing degree by the coronavirus pandemic. In the past few days, complete shut-downs have been ordered for non-essential businesses in several jurisdictions, notably the State of New York. Federal stimulus packages may soften the consequences, but are not likely to pick-up all losses, especially as the emphasis seems to be on pass-through of benefits to employees. Not surprisingly, tenants are turning to their landlords for relief from rent and other obligations under their leases. Tenants may find legal grounds for obtaining relief under one of two arguments. The first involves the specific language of the subject lease. Many leases contain so-called force majeure clauses. These clauses excuse non-performance directly caused by events beyond the control of the parties. Typical examples are floods, hurricanes, terrorism and governmental action. These clauses vary; many specify what events are covered, many do not relieve tenants from the payment of rent and some contain conditions that require strict compliance. Most leases contain “access” clauses limiting landlord’s responsibility for prevention of access to the premises. Sometimes, such clauses provide tenants with relief on certain conditions, primarily based on length of the period of inaccessibility. Individual leases must be carefully reviewed before predicting the result of litigation over their applicability. A second argument is based upon the doctrine of “frustration of purpose.” This basically provides that when an unforeseeable event occurs that makes performance under an agreement impossible of performance, the contract is terminated. It is questionable whether this argument may be asserted where a force majeure clause is contained in the lease. Courts have also varied in determining whether “unforeseeable” should be “unforeseen” and whether “impossible” should be “impracticable.” Since the duration of the pandemic will presumably not be perpetual, it is uncertain whether the doctrine will support a suspension of payments or require a termination of the lease. It will be necessary to examine individual lease provisions, including the length of the term, other relevant facts and the applicable law to determine whether this second argument has merit.”
For more info or questions on commercial leases, reach out to:
Courtney L. Birnbaum, Esq.
PHILLIPS NIZER LLP
485 Lexington Avenue, 14th Floor
New York, New York 10017
Direct Dial: 212-841-0519
Email: cbirnbaum@phillipsnizer.com
This information is provided as a public service to highlight matters of current interest and does not imply an attorney-client relationship. It is not intended to constitute a full review of any subject matter, nor is it a substitute for obtaining specific legal advice from appropriate counsel.