When landlords and tenants negotiated their leases, they probably did not have COVID-19 in mind. On Jan. 30, the World Health Organization and the Centers for Disease Control and Prevention declared COVID-19 a “public health emergency of international concern,” and a day later on Jan. 31, the U.S. Department of Health and Human Services Secretary declared that COVID-19 creates a “public health emergency.” On March 13, the president of the United States proclaimed a state of national emergency to exist as a result of the COVID-19 outbreak, effective as of March 1. Landlords and tenants could not have reasonably anticipated that a global pandemic could bring the global economy (as well as hand sanitizer and toilet paper inventory) to a grinding halt, reshaping how businesses operate for at least the near future. As a result, there are probably not explicit provisions in any lease that specifically guide a leasing relationship while COVID-19 continues to significantly affect day-to-day life.
Parties to a lease should, therefore, carefully review their leases as the COVID-19 situation continues to unfold to determine the extent of each party’s rights and obligations, as normal business operations might not begin again for several weeks, if not months. A few of those considerations are listed below.
Restricting access to facility. Landlords should consider what rights, if any, the lease affords the landlord to restrict access to the facility. They also must consider what areas of a building the landlord is permitted to restrict access to (e.g., the entire facility or only the common areas). Landlords also should determine what persons they can limit or prohibit access to – including a tenant’s visitors and licensees, a tenant’s employees, all except essential personnel or everyone. Further, landlords should identify what standards guide triggering such restrictions (e.g., what is an emergency condition) – and know if these restrictions can be applied uniformly in a nondiscriminatory manner to each building tenant (e.g., restricting access to all tenants)?
Rent abatement. It’s important to know if tenants request a rent abatement if a tenant’s business operations are restricted by the COVID-19 outbreak, or by federal, state or local laws that address the outbreak. For example, the Centers for Medicare & Medicaid Services’ March 18 guidance requires that all elective surgeries, nonessential medical, surgical and dental procedures be delayed.
Next, landlords need to determine if they are amenable to rent abatement. If so, they will need to identify what form rent abatement can take (e.g., extending the term for each month rent abates).
Fulfilling lease obligations. If landlords do not restrict access, they must know if the lease contains a continuous operation covenant that might be violated by a tenant ceasing operations within the facility for some period of time or from not being “fully staffed.” Additionally, the landlord should know if the lease requires the tenant to obtain business interruption insurance, such that it will be able to maintain its rental and other payment obligations until the COVID-19 outbreak subsides. If a lease contains a force majeure clause, it potentially could excuse either party’s performance of certain obligations under the lease (e.g., provision of services). For medical facilities, if the lease contains a use restriction or noncompetition clause, it could inhibit a tenant providing medical services from treating those who test positive for COVID-19.
Changes in laws. Landlords should check to see if the lease incorporates federal, state and local laws, regulations and ordinances passed in response to the COVID-19 outbreak that implicate the lease. They also should check to see if any federal, state or local governmental entities restricted a commercial landlord’s ability to retake possession of the leased premises in the event of a tenant’s default; if the lease incorporates Occupational Safety and Health Administration standards as to COVID-19 from the Department of Labor as to the cleaning and maintenance of the premises or facility by either the landlord or the tenant; and if a federal or state tax holiday interrupt the mechanics of setting operating expenses in a net lease.
Infections. There are several questions to consider if an occupant tests positive:
• Does the lease require a tenant to disclose to the landlord that a person working at or visiting the premises tested positive for COVID-19?
• In a multitenant building, must a landlord disclose to all tenants that a person working at or visiting the premises tested positive for the disease?
• In the event a person tests positive, who bears the cost of cleaning or disinfecting the premises and, more generally, the building and common areas?
We continue to learn more about COVID-19 and the impact it will have on our communities. Please refer to our COVID-19 resource center webpage and hotline at 317-429-3900 for any questions, as well as up-to-date information regarding the virus.
This article is educational in nature and is not intended as legal advice. Always consult your legal counsel with specific legal matters.