Client Alert: Relief for Commercial Tenants in the Time of COVID-19

By: Yourkvitch & Dibo, LLC

April 16, 2020

Many small businesses throughout Ohio are struggling to stay afloat and pay rent due to the recent situation regarding COVID-19 and the restrictions on business operations under Ohio’s Stay at Home Order in effect until at least May 1, 2020.

In an effort to provide some relief, on April 1, 2020, Governor Mike DeWine issued Executive Order 2020-08D, which requests that, for 90 days, landlords suspend rent payments and forgo eviction actions against small businesses affected by COVID-19. However, the Executive Order does not excuse tenants from their obligation to pay rent and it does not prohibit landlords from taking action to collect unpaid rent in the future. Gov. DeWine made a similar request of lenders to permit forbearance on real estate loans secured by commercial property in Ohio, but, just as tenants are not excused from paying rent, borrowers are not excused from paying their loan payments and lenders may take action to collect amounts due in the future.

Despite the requests made in the Executive Order and the inability of tenants to operate at full capacity, if at all, some landlords across the state are still demanding prompt rent payments during this crisis. If this is the case, here are some other helpful action steps to take:

1. Contact your attorney to review your lease for the key provisions described below and to discuss other rights you may have at this time;

2. Contact your accountant to review your finances and provide necessary financial documentation to apply for any assistance programs;

3. Communicate with your landlord as early as possible about your situation and request a rent abatement during the current crisis;

4. Contact your insurance company to review your Business Interruption Policy, and other related policies; and

5. Contact your lenders and request information on loan forbearance during the current crisis.

In reviewing your lease, there are several clauses your attorney will look for. For instance, your lease may contain a force majeure clause, which excuses a party’s obligation to perform if certain unforeseen circumstances arise making it reasonably impossible to do so. Typically, force majeure clauses must contain the specific event that has occurred in order for it to excuse performance. Force majeure clauses commonly include an act of God, such as a flood, hurricane or other natural disaster, and may include a catch-all such as “for a cause outside of the control of the parties” (which may still be limited by the courts depending on the facts). In the instance of a pandemic, tenant’s performance is more likely to be excused under the force majeure clause if it includes language regarding a public-health related event, such as an epidemic or outbreak of illness,[1] but it is not clear if lack of this specific language would preclude the tenant from exercising its right under the clause in this instance, especially if the clause contains “catch-all” language. Some landlords have already taken the position that a typical force majeure clause does not apply to the current pandemic.

If the lease does not contain a force majeure clause or the clause clearly does not cover the current COVID-19 pandemic, you may still be excused from performance under the doctrines of impossibility, commercial impracticability or frustration of purpose.[2] These doctrines are used as defenses in court by tenants sued for failure to perform and default under the lease, but can still be helpful in negotiating a resolution with landlord. They come into play when there are (1) unforeseen circumstances outside of the tenant’s control and (2) performance under the lease would cause extreme and unreasonable difficultly and expense, or when the contract would be worthless due to one party’s inability to perform. Typically, loss of profit alone will not excuse performance.

In some instances, performance of the contract can be deemed impossible if a law is passed making the performance illegal. Ohio’s Stay at Home Order requires all non-essential businesses to cease operations, except for minimum basic operations, and only permits “Essential Businesses” to remain open and operating subject to specific health and safety guidelines. Essential businesses, such as restaurants which are permitted to stay open on a carry-out and delivery-only model, may find themselves in a precarious position because they are legally able to stay open, but may not be doing enough business to pay rent or sustain operations.

Your attorney will review the lease for provisions that allow the tenant to terminate early or “go dark.” For instance, the lease may permit tenant to terminate if their sales or profits remain below a certain threshold for a period. Tenant should be prepared to provide financials if terminating early or going dark under this type of clause. Further, look to see if the lease contains a co-tenancy provision that allows tenant to terminate the lease or exercise a rent abatement if a certain number of stores, a certain named store, or a certain percentage of the square footage in the shopping center becomes vacant.

Other remedies that tenant should consider asking for when working with landlord to find a resolution are as follows:

1. Add the amount of rent abated to the back end of the lease;

2. Increase rental rate beginning 6 months after re-opening;

3. Extend the term of the lease for a period equal to the time rent abated; or

4. Offer to make improvements while rent is abated (e.g., fresh coat of paint, deep cleaning, etc.)

Lastly, it is important to keep all communications with landlord polite, cooperative, sympathetic and in writing. Any agreement reached should be reduced to a signed, written lease amendment. We strongly advise that you consult with your attorney for drafting to ensure that everything is documented correctly and you are protected.

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The attorneys at Yourkvitch & Dibo can assist with any questions and issues that may arise as the COVID-19 situation develops.

Claire O’Connor, Esq. is an associate with the firm and licensed to practice in Ohio. Her practice focuses on residential and commercial real estate, including lease negotiation and related litigation for commercial tenants with restaurant, office and retail locations throughout Ohio.

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[1] See also, The National Law Review, Force Majeure Clauses and COVID019 – Can Force Majeure Clauses Excuse Performance Under New York or Delaware Law in a Pandemic?, (Mar. 13, 2020), https://www.natlawreview.com/article/force-majeure-clauses-and-covid-19-can-force-majeure-clauses-excuse-performance.

[2] See also, The National Law Review, Origins of the Force Majeure Clause and Impossibility of Contractual Performance Defense (Mar. 19, 2020), https://www.natlawreview.com/article/origins-force-majeure-clause-and-impossibility-contractual-performance-defense.