How Commercial Landlords and Tenants Survive the Pandemic
Are you a commercial landlord or commercial tenant thinking, “How can I keep moving forward to survive this pandemic?” This article shares two important steps. First, assess the current business climate where your property is located. Second, determine the leverage you have to restructure the existing lease. This article is part of our series “Legal Considerations for Commercial Leases in the Reopening States,” which covers Georgia, Tennessee, and South Carolina
Assess the Current Business Climate
Each state will differ in its approach to reopening their respective economies. Georgia, South Carolina, and Tennessee have been quicker to reopen than other states. Whether you are a commercial landlord or tenant, it is important to do the following to assess the business climate where your property or premises is located:
- Review your state’s executive orders regarding the reopening of various businesses. Check your state’s chamber of commerce website for updates. For example, the Tennessee Chamber of Commerce and Industry has an excellent e-mail alert it sends to recipients whenever the state takes action affecting businesses in response to the COVID-19 pandemic.
- Review any local orders regarding the reopening of various businesses. Confirm whether executive orders issued at the state level supersede such local orders. For example, in Tennessee, the state attorney general issued a legal opinion making clear that the governor’s executive orders shall override any local municipality’s order regarding the reopening of businesses. The practical effect of settling this supremacy issue is to clarify to the local business owner that state law will trump the order of any local mayor. Local municipalities cannot take stronger action to protect the health and safety of its citizens (i.e., stricter measures) if it is not consonant with the overall policy and scheme behind the governor’s executive order to reopen businesses across the state.
As a landlord, you will want to recognize how states are regulating your tenant’s business. Those businesses that remain shut down (i.e., live music venues, bars, nightclubs) should be treated differently than restaurants or hair salons, which are now open but with modifications to their operations. If you are a tenant, knowing how your business will be regulated in the immediate future will best prepare you for a conversation with your landlord to renegotiate payment of rent or other material terms of the lease.
Determine How Much Leverage You Have
In the immediate future, tenants have great leverage to bring landlords to the table to restructure the terms of their lease and their amount of rent. The pandemic has decimated businesses across the board. Businesses that appear to have thrived are grocery stores, pharmacies, and home improvement stores, which have seen a surge in demand in response to the crisis.
While a crisis for tenants, the pandemic provides an opportunity to restructure lease terms. Why? Three main reasons. First, it is understood the pandemic has negatively affected most businesses. Second, landlords are not likely to evict tenants when replacement tenants are in low supply and are likely to have economic troubles of their own. Third, most court systems are not prioritizing eviction matters and are limiting in-person hearings to essential matters that cannot wait (i.e., criminal matters, domestic abuse, etc.), so the likelihood of landlords getting relief in the courts will be significantly delayed. This also does not take into account that some jurisdictions, such as South Carolina, only recently lifted a complete ban on residential and commercial evictions, creating a backlog of cases. Many states still have such bans in place. Such conditions necessitate a discussion between the landlord and tenant regarding how the payment of rent will change, so each can survive. The tenant wants to be able to operate its business, and the landlord wants to service any debt it may have on the property or pay its co-investors who have a shared ownership interest in the property.
Are you curious which lease provisions are likely to be the subject of negotiation during these unique economic times? Stay tuned for our next article.
In the meantime, if you have questions about commercial landlord or tenant issues as they relate to COVID-19, please contact Josh Crowfoot or a member of our Real Estate team.
Visit our COVID-19 Insight Center for our latest legislative and legal updates, articles, and resources.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings, and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. In some cases, the underlying legal information is changing quickly in light of the COVID-19 pandemic. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship. Please contact your legal counsel for advice regarding specific situations.