Post-COVID Lease Considerations for Commercial Landlords and Tenants

Tue 22 Dec 12:43 | Posted by on News

In 2020, the COVID-19 pandemic sent landlords and tenants scrambling to interpret their leases to determine their responsibilities under unprecedented circumstances.  As the first vaccines for COVID-19 are administered, and businesses plan and prepare for a return to some semblance of normalcy, all parties certainly hope not to encounter something like this again for a long while.   Even so, Landlords and Tenants should account for the possibility of the next pandemic (or another unforeseen event) when working on their next lease.  Here are some points to consider:

Force Majeure:  What Is a Pandemic?

In the COVID era, it has become de rigueur to add language along the lines of “pandemic or epidemic” to the list of force majeure events set forth in a lease, but it is worth noting that “pandemic” and “epidemic” are not legal terms of art, and they should be defined in the lease if they are used.  Lessors and lessees would be wise to include language tying this to a declaration by a specific body, such as the World Health Organization or the Centers for Diseases Control, or a declaration of a public health emergency by a local, state, or national authority.

Government Mandated Closure:  Is the Rent Still Due?

While many leases contain provisions for some specific instances of government-ordered closure, such as for building condemnation or environmental hazard, previously it was nearly unfathomable that any government entity would order the closure of essentially every business in a given locality.  While a repeat of the mass closures of 2020 may be unpleasant for landlords and their tenants to consider, it would be risky not to account for such a possibility in a new lease.  The most pressing question:  Is the rent still due?  Landlords and tenants may agree that rent payments will be owed in full, completely forgiven, or something in between, but it is better addressed on the front end.

Reasonable:  By Whose Standard?

The wide variety of opinion among politicians, media, and the public as to what constitutes a “reasonable” response to risks posed by COVID-19 serves as a reminder to all parties of the uncertainty that may be introduced by using such subjective language in a lease provision.  For instance, it is easy to imagine a situation in which one party feels it is “reasonable” to close leased premises while the other party feels strongly that such a closure is unreasonable.  The most “reasonable” course of action for a drafter may be to avoid including subjective modifiers in the lease.

by Andrew J. Gille