Fallout from COVID-19: I Can’t Pay My Rent. Now What?

The fallout from COVID-19 is creating troubles for everyone; from the individual tenant renting a residence to the large commercial tenants renting space for their businesses. Landlords are also going to be (and some already are) negatively impacted by the inability of these tenants to pay their rents over the next months, especially as April 1 approaches. Already, major corporations such as Subway and The Cheesecake Factory have said they will not be able to pay April rent due to the coronavirus outbreak. What are tenants who are unable to pay rent, and landlords who are now facing tenants without money to pay rent, to do when their lease agreements are completely upended by a worldwide pandemic?

Tenant: Read Your Lease! – Often, leases contain language that will excuse certain requirements under the lease for various situations that are beyond the control of the tenant and landlord. These provisions are referred to as force majeure provisions, and are designed to address situations such as those presented by the COVID-19 outbreak. They are often referred to as “Acts of God,” in that they are events that are preventing performance under the lease that are beyond human control. Many times, “pandemics” are included in the definition of a force majeure event. While the force majeure event rarely allows for termination of the lease, it does typically provide a grace period for the parties to perform under the lease (usually so long as the force majeure event is occurring – but read your lease to be sure!). You might be entitled to an abatement of rent, but you must be certain your lease provides you with this “out,” and you also must be sure to follow your lease to the letter to ensure you are properly taking the steps necessary to protect yourself. Simply refusing to pay rent is not a good approach.

Landlord: Terminate the Lease, Charge Late Fees, and/or Evict Your Tenant? – While you as a landlord might think you can just start charging late fees, terminate the lease, and/or evict your tenant because they are unable or refusing to pay rent due to the COVID-19 outbreak, the force majeure provision discussed above might be what keeps your tenant in the leased premises and you unable to do anything to enforce the rent payment provisions in your lease. In short, you might be required to offer your client free rent, at least for the duration of the force majeure event (assuming you did not specifically exclude payment of rent from the force majeure provision). But remember, often, the lease will require certain action on behalf of the tenant as it relates to the protections afforded by the force majeure event. If the tenant is not following the lease, i.e. not providing notice of their inability to pay due to the force majeure event, your ability to enforce the lease and the penalties for non-payment of rent might still be in place. The major caveat here: many local courts, as a relief measure to distressed tenants (generally residential tenants), have halted eviction proceedings during the current coronavirus outbreak. Further, the federal government could and may be issuing regulations and orders that prevent some of the enforcement rights under the lease, just due to the novel circumstances this worldwide pandemic have created and that were unforeseen just one month ago. It would be wise practice for landlords to consult with a real estate attorney before taking enforcement measures under the lease due to the current uncertainties and temporary relief measures that are being implemented by local and state governments, as well as the federal government.

The primary thing for both tenants and landlords to do during this time is simple: read your lease. If you have questions about your requirements to continue paying rent under the lease as a tenant during the current pandemic (or any force majeure event), or what options are available to you as a landlord to collect rent from a tenant refusing or unable to pay rent, the lease should provide those answers. If the lease does not provide those answers, or if the lease is unclear and you are unsure what options are available to you (either as a tenant or landlord), consulting with a real estate attorney will help you determine the next best steps to take in this time where little is clear.

Above all, never forget that tenants and landlords are still real people who are also being affected by the stresses, pain, and uncertainty that this pandemic has created. Sometimes, the best advice is to be human with each other and exhibit compassion in the face of shared struggle. Try to work with your tenant or landlord in the hopes of coming to a temporary agreement now (be sure to put it in writing!) that will ensure you are able to continue a good leasing relationship in the very near future when we overcome this difficulty together and the world returns to normal. Stay safe, stay healthy, and be compassionate to one another.

If you have questions concerning this topic or other matters related to real property, please contact Aaron Barton, real estate lawyer with Branscomb Law, at abarton@branscomblaw.com or (210) 598-5400.