Checklist for commercial tenants unsure what to do with April 1 rent payment
MacQueen & Gottlieb recently updated you about the effect of a force majeure provision on real estate contracts during a pandemic. Below is checklist to consider if you are a tenant deciding whether or not to make your April 1 rent payment:
1. First, determine how to provide proper “Notice” to your Landlord and/or Property Manager under your Lease. Most leases spell out when notice must be provided; how the notice must be provided – e.g., certified mail, email, etc.; and who must be included in the notice. If you notice is improper, your Landlord may refuse to consider the request being made. If you need a sample, feel free contact me for one.
2. Next, determine whether there is a force majeure provision in the Lease, or a similar provision that allows for the non-payment of rent during an event like the one you are facing. Many commercial leases contain a force majeure provision. But, they actually require the payment of rent during the event of force majeure or are only helpful to your Landlord. Additionally, it is quite common that the provisions are limited in their application – i.e., they apply only to labor shortages, war, or hurricanes.
3. If there is force majeure or similar provision and it allows for a rent abatement or the postponement of an obligation, you and your Landlord must document the abatement or extension, in writing. Most abatements usually last only as long as the force majeure event. So, for example, if the government ordered your industry to shut down for 2 weeks, you should receive a rent abatement of two weeks, possibly more depending on the circumstances.
4. If there is no force majeure provision or the provision is unhelpful to you, you should consider whether other legal theories or statutes, like “commercial impracticability;” “frustration of purpose” and/or A.R.S. 33-343, may provide you with a basis to not pay rent.
5. If your Landlord is unwilling to provide a break on your rent obligation, there are other strategies to employ. For example, pay your CAM charges, only. You will likely be in default. But, this will allow your Landlord to continue to upkeep the building and shows you are being reasonable. Another strategy is to pay part of the rent approximating the value of your new situation. E.g., if you own a restaurant and can only do takeout now, pay rent based on what a takeout restaurant would pay in rent. Again, you will still be in default but your Landlord may take it easy on you.
6. Most commercial landlords and property managers protect themselves with the use of a real estate attorney. You should consider doing the same. For additional strategies or forms, please feel free to contact me.
Patrick R. MacQueen is a founder of MacQueen & Gottlieb, PLC. If you are interested in learning more on how you could be affected by the coronavirus, contact him to discuss.