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During the pandemic, some of your tenants may have abandoned their office space to work from home, leaving the premises fully or partially furnished. Now that the leasing market is returning to something approaching normal, leasing these furnished offices may prove to be a windfall for your business. The problem is that many, if not most standard office leases are designed for leasing unfurnished space.
New York State has become something of a national laboratory of commercial leasing litigation testing the rights of retail and restaurant tenants that couldn’t meet their lease rental obligations due to COVID-19 shutdowns. A brand-new case brought by upscale retailer Hugo Boss is particularly compelling because it involves most of the leading theories for COVID-related rent relief. Your assignment: Figure out which, if any, of those theories the court found as justifying Boss’s failure to pay rent in this case.
Throughout the course of this pandemic, landlords have found all kinds of creative ways to support COVID-19-strapped tenants who can’t pay rent. When the history is written, it is likely to show that working together to find mutually workable solutions was, in fact, the most effective approach.
Many, if not most, retail tenants hesitate to sign leases containing continuous operation clauses. Of course, this dogged determination to maintain the right to go dark and not be forced to operate no matter how bad business becomes is nothing new. But there can be no doubt that the COVID-19 pandemic has made it harder than ever for landlords to get tenants to accept a continuous operation clause.
In addition to their express terms, leases are governed by so-called common law rules that apply regardless of what the agreement actually says. One of these rules is a normally obscure and arcane doctrine known as “frustration of purpose,” which applies when performing lease duties is possible but pointless due to some unforeseen event or circumstance beyond the party’s control. A close cousin is the doctrine of impossibility, which comes into play when some unforeseen or supervening force renders performance impossible.
They say that no good deed goes unpunished. And if you’ve cut tenants a break on their rent during the COVID-19 crisis, you may have learned the truth of this maxim the hard way. This is especially so if the tenant later declared for bankruptcy. Thanks to the so-called rule of preference, you might have had to cough up the deferred rent payments to the tenant’s other creditors.
Although premises liability and the risk of negligence litigation are perennial concerns for commercial property owners, COVID-19 infuses these issues with a new immediacy. The nightmare scenario: Tenants and/or their employees, customers, vendors, or other invitees who get COVID will claim they contracted the virus on the premises and sue you for negligently failing to maintain the property in a clean, safe, and sanitary condition.
The tenant security deposit is the piggy bank that you don’t want to break open while the lease remains in effect, unless it’s absolutely, positively necessary. And with COVID-19 cases resurging and the prospects of business shutdowns looming, we may be getting close to that absolutely, positively necessary point.
Do financial losses that a landlord, tenant, or other business incurs as a result of COVID-19 and the resulting government shutdowns count as a “direct physical loss” covered by business interruption insurance?
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