NEW YORK CITY- The coronavirus has accelerated the economy into a downhill descent and stakeholders across every real estate asset class are reviewing contractual obligations to assess risk and introduce clauses to limit exposure, citing force majeure, unforeseeable circumstances or events that prevent a party from fulfilling a contract, Barry Lapides, a partner at Berger Singerman law firm, specializing in complex commercial real estate and finance transactions, tells GlobeSt.com.
“Every single sector in real estate will be impacted by this pandemic,” Lapides said. “The safety of what used to be multifamily and senior housing, and the traditional safety over the last ten years is out the window.”
With concern about commercial disputes bubbling up, having resulted from the current economic uncertainty, stakeholders are asking whether force majeure clauses to contractual obligations may now apply, which is usually used after devastating natural events, such as a hurricane or a lightning strike, also referred to as “an act of God,” Lapides said.
According to Lapides, tenants will have a hard time paying rent, which could contribute to a vicious cycle of borrowers defaulting on their contractual obligations, unless massive local state and federal assistance to either abate or forestall some disputes and evictions are made available.
Lapides is seeing the use of force majeure for landlord obligations for space build-outs. For instance, in cases where a tenant had a strict deadline to move-in and didn’t because of the national shutdown, the contractor is a no-show or a permit wasn’t issued, the tenant isn’t liable. The clause also includes a provision that if a tenant is already in place at a space, it can’t say they won’t pay rent.
With current events, more attention has been placed on force majeure but there are still question marks, according to Lapides. “There’s ambiguity with clauses because it has always been viewed as boilerplate,” he said. “And a lot of them don’t cover pandemics.”