Over the last year and a half, the pandemic caused us to reevaluate and restructure nearly every aspect of how we do business. With a number of companies transitioning to a hybrid workplace model, commercial leasing certainly continues to be a hot topic. If you are currently looking for space or your existing lease is coming up for a renewal, it would be wise to review it in its entirety from pandemic perspective, even if you are happy with the rental rate and other financial terms. Below, we point out three provisions that can prove critical to your organization in the new pandemic reality.
Commercial leases have included a force majeure clause for years. For those unfamiliar with it, the provision states that the landlord, and in some cases the tenant, is not responsible for delays caused by acts of God, war, strikes, riots, or any government-imposed restrictions. It is important to mention, however, that this clause traditionally has looked after the interests of the landlord as it may also provide that the timely payment of rent by the tenant is not excused by force majeure events.
The nationwide shutdown caused by the pandemic, however, exposed the pitfalls of the force majeure clause language. As restaurants and retail stores were shut down, and offices across the U.S. sat empty, the businesses leasing the space were still contractually obligated to pay rent.
To protect themselves from similar scenarios, tenants should request an amendment to this language to include a rent abatement clause. Keep in mind that it is very unlikely to get a landlord to agree to an indefinite rent abatement period, even under the most extreme circumstances, so tenants should shoot for a predefined rent-free period. Alternatively, the parties could agree to include a termination clause, which would allow the tenant to terminate their lease and vacate the premises, with or without a penalty, if a force majeure event occurs.
Buildout and Commencement Date Delays
The pandemic caused a number of industries to experience labor shortages, and building material manufacturers and construction companies were no exception. The resulting production and servicing delays pushed back buildout schedules and move-in dates for many commercial tenants, whether office, retail, or industrial.
Traditional leases already included a clause requiring the execution of a commencement date certificate upon completion of a buildout. Oftentimes this certificate also sets the commencement of rent payments. With the pandemic causing significant delays to the typical buildout schedule, however, tenants should consider requesting a language that protects them from having to begin paying rent if the buildout is delayed due to government-imposed shutdowns or the consequent labor or material shortages. This would be especially important if the buildout is managed directly by the tenant.
Building Systems and Services Requirements
Traditionally, tenants have had very little say in the selection, operation, and maintenance of the building systems and common area fixtures in the properties where they lease space. While landlords are certainly obligated to maintain everything in good working order, tenants would rarely have any specific requirements.
We can expect this to change in the post COVID-19 reality. Health-conscious tenants may be looking to add stipulations requiring the landlord to follow all ASHRAE, OSHA, and CDC guidelines while operating the property. They may even have such specific requirements as a minimum amount of outdoor air to be circulated throughout the premises, higher-rated MERV filters, touch-free doors and bathroom fixtures throughout the building, and even enhanced or custom cleaning procedures.
The good news is that most landlords have already recognized the importance of maintaining a healthy environment for their tenants, and have already implemented many enhanced system operation protocols and beefed up janitorial services.
Without a doubt, there are a lot of unknowns when it comes to incorporating the above points into a lease agreement. For example, how does one define “pandemic” for the purposes of triggering the force majeure clause? Would pandemic-related rent abatement kick in if a restaurant remains partially open for takeout?
Remember also, clauses that protect the tenant’s interest tend to represent risk for the landlord; therefore they won’t be too eager to accept such lease language amendments. Your best bet for securing the lease clauses that can protect your business in uncertain times is to hire a tenant representative, who will use their industry knowledge and negotiation skills to get you the best possible lease.
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