What Can Commercial Landlords And Tenants Do To Protect Themselves During The Coronavirus Pandemic?

As the coronavirus pandemic continues to keep businesses closed or operating on a limited basis, commercial landlords and tenants alike are facing unprecedented financial struggles. For many tenants, paying rent is becoming more difficult each month. And for many landlords, the risk of losing multiple tenants due to the economic impacts of the pandemic presents a very real risk of bankruptcy.

If your business is struggling to make its rent payments, or if your commercial tenants are at risk for default due to the COVID-19 crisis, what options do you have available? As with most legal issues, the answer depends on the specific circumstances involved. However, the nature of the current crisis presents some unique alternatives. Prior to taking drastic action, business owners and commercial landlords should consider all options that are on the table.

1. Negotiating Temporary Rent Concessions

For example, one option may be to negotiate temporary rent concessions. While commercial landlords may be less likely to consider this option under normal economic conditions, during the pandemic, there are few – if any – replacement tenants available. So, rather than terminating a lease and losing a revenue stream entirely, a landlord may find that it is in its best interests to negotiate a short-term solution that protects the parties’ lease relationship long-term.
Temporary rent concessions can take various forms, and they can come with various stipulations and conditions. In some circumstances, landlords may also seek to require their tenants to make up their rent deficiencies over time. It is a commercial contract relationship, so both parties have a significant amount of flexibility, and both parties will need to decide (i) what they can afford, and (ii) what risks they are willing to assume.

2. Seeking Relief Funding

While the $349 billion Paycheck Protection Program (PPP) quickly ran out of money, the federal government is currently evaluating other options for injecting capital into the economy, and there are other coronavirus-related relief funding opportunities available to businesses as well. For tenants that cannot afford to meet their financial obligations and landlords that are struggling due to their tenants’ non-payment of rent, taking advantage of low-interest loan opportunities may provide a way to weather the storm.

Of course, when taking on additional debt, companies must carefully weigh the financial risks involved, and small business owners should have a clear understanding of whether they are being required to provide personal guarantees. Even if taking out a loan seems to be the only option, the decision to borrow still needs to be made based on a careful assessment of the terms and conditions involved.

3. Taking Advantage of Other Government Benefits

In addition to low-interest business loans, government entities are offering other benefits to businesses that are negatively impacted by the coronavirus pandemic as well. For example, under the Families First Coronavirus Response Act (FFCRA), tax credits are available to businesses that provide paid leave pursuant to the statute’s extension of the Family and Medical Leave Act (FMLA). The Coronavirus Aid, Relief, and Economic Security (CARES) Act also includes a new tax credit for businesses impacted by the COVID-19 crisis.

4. Offering New Products and Benefits

During the coronavirus pandemic, many businesses have transitioned to offering takeout and delivery services. Others have sought to protect their customer bases by offering new products and benefits. For commercial tenants that are struggling because they are closed or because they cannot meet their customers’ expectations, finding new ways to stay relevant could be crucial to staying out of the red.

However, when offering new products and benefits, companies must be careful to avoid any legal miscues that could lead to litigation. For example, gift cards and gift certificates should have clear terms, and raffles and giveaways need to be conducted in compliance with federal law. Potential safety and liability risks need to be considered as well, and companies must avoid copying others’ ideas that may be protected as intellectual property (IP).

5. Renegotiating with Vendors and Suppliers

On the reverse end of the spectrum, commercial tenants and landlords may be able to reduce their financial burdens by renegotiating with their vendors and suppliers. Here, too, companies may prefer to negotiate mutually-agreeable terms rather than losing business relationships entirely. If renegotiating with one vendor or supplier does not provide sufficient financial relief on its own, renegotiating multiple contracts may provide the stability that commercial tenants and landlords need to survive the coronavirus pandemic.

When seeking to renegotiate, commercial tenants and landlords must approach the negotiations strategically; and, in most cases, it will be beneficial to seek to renegotiate before going into default. When granting financial concessions, vendors and suppliers will likely want something in return. So businesses will need to carefully review their revised contract terms to ensure that any additional risks or future financial obligations are sustainable.

6. Reducing Payroll and Cutting Other Expenses

Finally, if necessary, commercial landlords and tenants may need to consider reducing their payroll and cutting other non-necessary expenses. For tenants, rent is one of the few expenses that they cannot afford not to pay, but there may be opportunities to trim costs elsewhere. For landlords, operating with limited revenue due to lease payment defaults may necessitate cost cuts as well.

When terminating employees or vendor relationships, businesses need to be careful to assess and address the various legal implications involved. In the employment realm, this means documenting the reason for each employee’s termination and taking the other steps that are necessary in order to execute a reduction in force without exposing the company to legal liability. With regard to vendor contracts, landlords and tenants must ensure that they have the ability to terminate and that terminating prior to expiration will not trigger a dispute that could lead to litigation.

Speak with a Trusted Local Attorney at Bolan Law Group.

If you have questions about the options that are available to your business during the COVID-19 crisis, we encourage you to get in touch. To speak with an attorney at our Tacoma law offices in confidence, please call us directly or inquire online today.