Rent and Commercial Properties: Do You Need to Pay During COVID-19?

As insane and unpredictable as this pandemic might be, the rubber is meeting the road this week as it comes to the relationship between tenants and landlords. While evictions and foreclosures have been suspended for residential property, that is not the situation for commercial properties. While many courts are closed and are moving very slowly, some landlords are taking a very hardline position with their tenants. Effectively, they are saying you signed the lease, you owe the money.

From the landlords’ perspective, they have obligations to meet, such as real estate taxes and utility bills, as well as, of course, in all likelihood their mortgage payments. Commercial tenants, on the other hand, especially those that are not in business right now, whether it is a restaurant or a hair salon, take the position that the very essence of the lease has been frustrated and is now governed by the doctrine of impossibility.

I suspect that in most cases, landlords and tenants will work through this situation and come to some reasonable accommodation, especially if the tenants are applying for the various Small Business Administration grants and loans that are becoming available.

The issue, however, is that many of these programs, while well intentioned, will take weeks if not months to effectuate and the landlords may become a bit antsy; however, I would suggest to any landlord that is planning on evicting a tenant that they better know: (a) what the new rent is going to be in the marketplace, and (b) how long the space is going to remain vacant in this particular market.

I see scenarios where entire strip malls or buildings will remain vacant for weeks, months and even possibly years in some circumstances, to the point that the buildings will have to be completely repositioned and used for something other than its current intended purpose. At the end of the day, it is fascinating that the government is trying to get it right this time, recognizing that small business is ultimately the backbone of this country and that without it, the economy will remain seriously depressed for months or even years if we cannot revive the small business sector of America.

At the end of the day, the American dream has always been to own your own home, own your own business, and be your own boss. To the extent that we destroy that theoretical construct, we will be destroying, in essence, the fabric of America.

I will conclude that there was one landlord that suggested that he had to have his tenants’ rent because he had a fiduciary duty to shareholders. Ironically enough, if the landlord evicts that tenant, (s)he will probably be violating a fiduciary obligation to the shareholders because, in all likelihood, (s)he will not find another tenant at that same rent any time soon, and the shareholders would be better off just taking a 90 day deferral on their dividends than having to take a massive write down on the asset.
 
Don’t miss the next exclusive webinar: “Deeper Dive into COVID-19’s Impact on South Florida Real Estate Plus SBA Emergency Programs including the PPP” which will be tomorrow,  Tuesday, April 7, 2020 12:00 PM Eastern Time. Register Here
 
In the interim, should you have any questions or concerns about your responsibilities or obligations, feel free to contact us. We are here for you.

May you and your loved ones be safe,

From the trenches,

Roy D. Oppenheim