Commercial Lease Provisions are Changing with the Pandemic
Like nearly every business in America, the commercial leasing world is making changes to respond to a post-pandemic world. Because of restrictions on the use of common spaces, commercial lessors are making adjustments to leases in areas like Force Majeure clauses, insurance provisions, and the use of common areas, common area caps, alterations, and rules and regulations. These changes reflect a new market and a way of business for landlords and commercial tenants alike.
A recent Globe Street article "How Retail Leases Will Change in a Post COVID World" (Borland, 07/16/20) focuses on the commercial owner’s response to the pandemic. Specifically, the article addresses how lease-modifications can put landlords in a better, more flexible position to respond and react to the current public health crisis or similar future public health crises.
So, what are some of the changes you should look for, you ask?
Check your Common Area Language.
With common areas, most current leases are too broad to account for usage and social distancing and therefore is likely one of the first areas that need to address. Villalpando urges that post-pandemic common area language should include the “Control of Common Area provision” broad enough for landlords to respond to pandemics or similar emergencies and sufficiently flexible to address public health rules changes.
Landlords may even want to consider converting common area spaces to accommodate social distancing. For instance, according to the article, landlords should consider use-exemptions for tenants who must use common areas, such as walkways, to comply with social distancing and stay in business, provided however that tenants meet reasonable prerequisites that minimize the owner’s liability for such usage.
Consider Increasing Caps and Flexibility to Recover Unforeseen Expenses.
With the increased costs to accommodate usage, in leases where there is a cap on increases to common areas costs, the landlord should consider language to expand or define “uncontrollable costs” as an exemption to those limits. For example, installing hygiene stations, increasing automatic entry, and hiring additional personnel were all extra costs to owners.
In situations where the landlord has a base year floor or uses the prior year’s costs as a basis, landlords should consider modifying language to “gross-up” the base year, to be more reflective of what common area costs are.
Be mindful that if you, as a tenant, seek a modification of your rent based on the pandemic, do not be surprised if your landlord seeks their own.
If you need to review or modify a commercial lease, consulting with a qualified local attorney before executing any modifications will help you avoid some of the costly pitfalls we see with poorly negotiated contracts before the pandemic.