Critical Lease Issues in COVID-19 Crisis


By: Bruce Bagdasarian

March 20, 2020

The current crisis has created unprecedented pressure on the retail and hospitality industries.  With people staying at home, except for an occasional trip to the grocery market, and with some cities closing down restaurants, except perhaps for take-out, restaurants and brick and mortar retail are reeling, other than pharmacies and grocery stores.  Both landlords and tenants need a strategy to deal with the crisis, especially as the month of April approaches and the next round of lease payments are likely due.

Tenants should consider numerous options in approaching landlords, ranging from rent deferral or reduction, with the shortfall to be made up over time, to using security deposits to soften the cash demand, with replenishing of the security deposit in the future.  Where co-tenancy clauses exist, leverage may exist for tenants, and in the case where continuous operations clauses are applicable, a force majeure or impossibility defense may exist for tenants.  Each case is fact specific and the approach depends, in part, on the applicable lease terms.  Also impacting the leverage between the parties are moratoriums on evictions and foreclosures that are now being imposed in some states.

Given the rapidly-evolving circumstances surrounding the COVID-19 crisis, communication between landlords and tenants is essential.  Finding mutually agreeable solutions in the short-term may be necessary as the impact of the crisis comes into focus and hopefully passes.