RENEGOTIATING COMMERCIAL LEASES DURING THE COVID-19 PANDEMIC: COLLABORATE, COLLABORATE, COLLABORATE

RENEGOTIATING COMMERCIAL LEASES DURING THE COVID-19 PANDEMIC:

COLLABORATE, COLLABORATE, COLLABORATE

A reality of the Covid-19 Pandemic is that its impact, either directly or indirectly, has reached everyone, including commercial landlords and tenants. In this forefront, the implications of Covid-19 are immeasurable, and the renegotiation of any lease will require the utmost collaboration of both landlord and tenant.

As an initial step, both parties and/or their counsel should be aware of the statewide moratorium on eviction, any local ordinances, which more narrowly define certain terms (i.e., what constitutes “financial impact”) and may provide a timeline for re-payment of past-due rents, as well as court orders and regulations on unlawful detainer/eviction actions.

Since collaboration is key, either party may start the conversation by giving reasonable notice. For instance, a landlord may start “soft eviction” by sending a letter notifying the tenant of past-due rents. Or, the tenant may send written notice of its inability to pay rent due to Covid-19 with a request for rent abatement or deferment. Typically, however, it is the tenant who is proactive in contacting the landlord to initiate a dialogue.

There are a myriad of ways to negotiate a lease but, in this Covid-19 era, these options start with a discussion of the financial impact Covid-19 has had on the tenant. The parties may then discuss –

• abatement of rent;
• deferment of rent and amortization of past-due amounts for an x number of months in the future over the remaining lease term;
• deferment of rent with a lease extension equal to the months of deferred rent where the deferred rent will be paid at the end of the lease;
• application of security deposit funds to past-due rent amounts;
• termination of the lease; or
• other available options.

Keep in mind that the above list is only a sampling of options and the parties and/or their counsel may reach a more creative resolution. Lastly, the parties should be aware of the legal implications of amending a lease, including whether an amendment is superseded by legislative action such as Senate Bill 939 which, at the time of this blog, was making its way through the legislative process.

Marie E. Wood is an associate with Reid & Hellyer, APC where she practices business and real estate litigation as well as business-based immigration law. She is also an advisor to the California Lawyer Association’s Real Property Law Section. For her full bio, visit: Marie E. Wood