Responding to a Tenant’s Request to Defer or Abate Rent Due to COVID-19
Given widespread financial hardship due to COVID-19, commercial landlords are receiving requests for relief from tenants unable to pay the next month’s rent. Legally, landlords are probably justified in refusing to abate or defer rent, though this issue is far from settled and ripe for future litigation.
A tenant in this situation has two likely arguments for seeking rent deferral:
- A force majeure clause in the lease (one that provides both parties relief from obligations upon events such as natural disasters, war, and acts of God); and
- Frustration of Purpose (a legal doctrine excusing a party from performing its obligations under a contract if it is prevented from acting due to an unforeseen event).
As lease disputes arise, it is possible that these arguments convince courts—potentially sympathetic to tenants who have not been able to pay rent during the COVID-19 emergency—to grant an abatement or deferral of rent. To add more uncertainty for landlords, Sarasota County’s Clerk of Court, relying on an order last week from the Supreme Court of Florida, has temporarily stopped issuing writs of possession (the final orders in an eviction lawsuit necessary for removing an evicted tenant).
As long as the Clerk of Court takes this position, landlords will be prevented from promptly evicting delinquent tenants. Given these obstacles, and considering landlords have a vested interest in ensuring the long-term success of many of their tenants, landlords should consider creative solutions when responding to a tenant’s request for relief. Below are options a landlord can consider in this situation:
- Refuse any abatement or deferral. This approach may only be viable for financially strong tenants, or those with whom the landlord has little long-term incentive to cooperate (e.g., tenants with a poor payment history, or who will be moving locations soon, or permanently closing their business). Also, a landlord may have more leverage to take this position for leases that do not contain a force majeure.
- Require tenants apply for assistance under the CARES Act or other emergency assistance programs. The recently enacted CARES Act allows small businesses to apply for assistance from the Small Business Administration. Certain tenants may also be eligible for the Florida Small Business Emergency Bridge Loan Program. Landlords can request eligible tenants apply for this assistance, and pass it on to the landlord in the form of continued rent payments. Alternatively, landlords might want to require this assistance as a condition to deferral of rent payments under Options #3 and #4, below, to ensure that the tenant will have sufficient cash to continue to pay rent once the COVID-19 emergency ceases.
- Temporarily defer rent payments and make up missed payments over a period of time. The deferral could be for the entire amount of the rent, or just a portion, and can be allocated in whatever manner the parties may agree is workable (i.e., for a period of several months after the COVID-19 emergency ceases). However, landlords may wish to take a “wait and see” approach and only agree to the deferral on a month-to-month basis.
- Defer rent payments and agree to extend the lease for the duration of the deferral. Generally, this approach is less beneficial for landlords than Option #3, but tenants who might be slow to recover after the emergency, or who were barely able to pay rent before the emergency, might only agree to an extension of the lease, rather than making increased payments once normal business operations resume.
Each tenant’s ability to pay rent will vary, and landlords with multiple tenants face a myriad of challenges as they attempt to develop solutions that maintain continuity of their own cashflow without alienating their best and most reliable tenants. At Williams Parker, our team of experienced business and real estate attorneys are uniquely equipped to provide landlords with the depth of counsel they need to respond to these quickly evolving challenges.
- Writs of possession are also required to take possession of property after a foreclosure.
- The Clerk’s position applies to both residential and commercial evictions. For recent developments surrounding a federal moratorium on certain residential evictions, see our article Mortgage Relief in the CARES Act.
Real estate attorneys Thomas B. Luzier and Patrick W. Ryskamp contributed to this post.