Webinar Recap: Commercial Real Estate Update – What’s Ahead for Commercial Leases?
As we watch the country slowly re-open – and in some cases, re-close – commercial tenants, property managers and landlords are being as proactive as possible in the face of continued uncertainty in the last half of the year and beyond.
Requirements for Commercial Leases
State and local restrictions on commercial lease evictions continue at least through August 1 – and there’s a strong likelihood they will continue through Q3 in some form.
Evictions: The Seattle moratorium on commercial evictions continues through August 1 for small businesses (less than 50 employees) and nonprofit organizations. Importantly, during this time, tenants cannot be evicted even if the lease has expired or there is a breach.*
Payment: Commercial landlords cannot charge late fees or interest on past due balances.* Instead, property owners “shall endeavor to enter into a payment plan or other workout agreement." What that really means is open to interpretation, but a good faith effort should be made.
Rent increases: Rental rates must remain unchanged until the orders are lifted. Exceptions include rent increases and holdovers that were agreed to in the original lease agreement.
Key Takeaways: Notify tenants that they are in violation of terms. Send statements with balances due and remind them that they are not allowed not to pay.
*Always check with your legal counsel for the latest information on orders.
Retail Lease Negotiations
Tenants and landlords continue to cope with reduced operations and the resulting cash-flow impacts with lease negotiations. During the webinar, David Merisko of Mattis Partners provided an update on the state of lease negotiations and the overall commercial real estate retail landscape.
Rent deferment & abatement: Retailers sought a range of remedies, such as 100% deferral for 3 months paid back over 12 months in 2021 and 50% deferral for 6 months paid back over 12 months in 2021. Many tenants who sought deferments received PPP funds that they used for immediate rent payments, requesting to push the arranged deferral to Q3. Landlords and REITs are being as accommodating as possible, but there is concern among some West Coast investors in the face of California's return to lock-down. Lenders, for now, appear to be lenient with consent obligations on loans, streamlining the official (and complex) process to allow deferrals.
Key Takeaways: Communicate regularly. Be reasonable. For landlords, remember it’s cheaper to keep a tenant in place than find a new one, especially during a pandemic and recession.
Pandemic language: Attorneys are incorporating pandemic-related language, particularly for retail contracts. For example, restaurants have started assigning values to the amount of business they do in-store and via curbside or drive-through and asking for abatements equal to those percentages if they have to close. We're seeing similar adjustments related to entitlement timelines for opening, such as day-for-day consideration for construction or permitting shutdowns that pertain to landlords and tenants. Finally, the discussions about whether COVID-19 qualifies as business interruption or force majeure event continue. Until now, these clauses were often overlooked in lease negations and rarely used. That means the case law is very old, and with courts shut down, they haven’t had an opportunity to update the language and the law.
Key Takeaways: Be very specific about the language you propose in your leases. Make it commercially reasonable for the use, tenant and landlord.
The full webinar is available below for you to view and if you have specific questions, contact us. Also, mark your calendars and register today for our next webinar on Thursday, August 13.
