Lawyers Help Retail Tenants to Work With Landlords

As we move deeper into the economic crisis caused by the pandemic—and as April rent has come due—retail tenants are starting to look for ways to mitigate the impact from the crisis. Real estate attorney Kenneth Fields says his first question to tenants looking for advice is: will you have a viable business in the future? It is the starting point to developing a game plan.

“If I am representing a tenant, I will ask whether my client believes it will have a viable business in the future, because the answer to that question will obviously dictate what my client is willing to do now,” Fields, a partner at Greenberg Glusker, tells GlobeSt.com.

The goal, regardless of the answer to that question, is clear communication between both parties and a collaborative solution. “Ultimately, we are suggesting that parties communicate with one another and try to find a solution that recognizes the interests of both sides,” says Fields. “Clearly, a landlord must understand that a tenant may not be able to pay full—or any—rent while its business is closed, but the tenant should also recognize that its landlord might have its own obligations to lenders and other vendors.”

Tenants should have proper representation during these negotiations to make sure that their interests are represented, but negotiations should still remain informal. “Consulting with a professional to evaluate what one’s rights is a proper first step, because nobody should negotiate in a vacuum,” says Fields. “However, like most disputes, it will probably be less expensive and better for a long-term relationship to resolve matters amicably and without material legal expenses.”

During these negotiations, force majeure clauses will likely come into play. Tenants are most likely to enact these clauses, but there are instances when landlords might use them, too. “There may be circumstances under which a landlord can argue that the COVID19 situation is preventing the landlord from performing common area maintenance or other maintenance obligations under a lease,” says Fields.

In addition to lease contracts with tenants, landlords may also use force majeure when discussing obligations with lenders. “Additionally, landlords who are borrowers will likely try to argue that statutory force majeure rights excuse them from paying debt service to the extent that tenants have stopped paying rent due to the COVID19 situation,” says Fields.