Coronavirus-Related Amendment to Commercial Lease
Coronavirus-Related Amendment to Commercial Lease
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You can always amend a commercial lease if both landlord and tenant agree to the new terms. As the novel coronavirus sweeps the country, forcing small businesses to slow operations or close, landlords and tenants are facing tough questions: Should the landlord forgive or postpone the rent during the duration of a local or state-wide stay-home order? What about other tenant obligations, such as common area maintenance contributions and keeping up insurance policies? Similarly, should the parties reconsider some landlord obligations, like building-wide HVAC operating hours, janitorial services, and restrictions on the tenant’s use of its rented space?
How Should Landlords and Tenants Negotiate?
In normal times, landlords are naturally hesitant to forgive tenant obligations, fearful that a tenant who can’t come up with the rent or fulfill other duties is headed for failure; why postpone the inevitable? Especially when the space is attractive and the market is hot, the landlord might be anxious to move on to a more solvent renter.
But these coronavirus times are not normal. Small businesses everywhere are hurting, and there’s hardly a line at the door to take over space that the current tenant cannot afford. Landlords who can afford to work with their tenants might wisely conclude that it’s worth it to compromise, if doing so enables the tenant to stay above water and, hopefully, re-open once the crises has passed. The alternative—declaring a default—simply empties the space (that is, if local or state authorities have not banned terminations and evictions, see below). Finding and beginning anew with an untested tenant might, in the end, be more hassle and riskier than propping-up an otherwise steady tenant.
Why Hasn’t Nolo Offered a Set of Amendments That Will Work for Everyone?
Because each lease situation is unique, we can’t offer a finished set of amendments. But by using this Nolo form and considering these instructions, you can systematically go through your lease, consider possible changes, and record the ones you choose on this form.
Importantly, because the form will become part of your lease, any terms or conditions that you do not change will remain intact. In other words, you’ll be spared the hassle of dealing with an argument about whether additional clauses were changed or new ones added. Having your agreed-upon changes in writing and firmly attached to your lease should forestall such future complications.
How Can We Amend the Rent Clause?
Decreasing the rent during a period of reduced or no operation is the most common change that landlords and tenants will make. Be sure to describe:
- whether the rent will go down to a specified figure, or by a percent
- whether the landlord is forgiving the rent or postponing it
- when the original rent be reinstated, and
- if the rent has been postponed, at what point the unpaid rent will be paid back, and whether the tenant will owe interest.
If you are in a city or state that has instituted an eviction moratorium, be sure that you learn its terms, and write your amendment accordingly. For example, the temporary moratorium on evictions for unpaid rent in Los Angeles states that tenants will have up to six months after the local state of emergency is over to pay the rent.
To find out whether a moratorium applies to you and to learn its specifics, go to the webpage maintained by the National Conference of State Legislatures, State Action on Coronavirus (COVID-19). To find orders from governors, type your state’s name, followed by “eviction moratorium” into your search engine.
How Can We Amend the Premises Clause?
If the tenant leases on a square foot basis, and is closed or has limited its operations, it might not need all of the space it’s leasing. You can agree to decrease the area being rented, which will decrease the rent.
How Can We Amend the Deposit Clause?
Normally, landlords dip into the deposit to cover unpaid rent. But they don’t have to; they can declare a rent default right away. Landlords and tenants might agree that the landlord will use the deposit to cover unpaid rent right away, rather than declare a default. If you specify a time by which the tenant will replenish the deposit, be sure to check any applicable eviction moratorium law—it might prevent eviction based on a failure to replenish a security deposit.
How Can We Amend the Holdover Clause?
The holdover clause specifies what will happen if the tenant doesn’t move out as planned at the end of the lease. Depending on the ending date of the lease, landlords and tenants might want to relax any provision that calls for increased rent during a hold over period.
How Can We Amend the Use Clause?
This clause places restrictions and requirements on how tenants use their space. For example, it might limit a mall tenant to selling only coffee and pastries; or limit a restaurant to take-out for only 10% of its operations; or restrict the public’s access to a tenant that does wholesale. These days, however, that café might need to offer meals as well as snacks; the restaurant might be able to offer only take-out; and the wholesaler might need to deal directly with the public. Consider the nature of the tenant’s business and how it needs to change to survive; then vary the Use clause accordingly. (Landlords in multi-tenant properties, where use and exclusive clauses held by all tenants must be harmonized, might have some difficulties here.)
How Can We Amend the Utilities Clause?
Utilities clauses specify how costs are metered and apportioned. A tenant that is closed and dark might reasonably ask to be absolved of cost allocations that make sense when everyone is operating.
How Can We Amend the Taxes Clause?
Tenants in “net” rent situations pay a portion of the landlord’s taxes. Landlords and tenants should check with their state taxing office to see whether state and local taxes have been postponed; if so, the amendment to the Taxes clause should reflect the new arrangement.
How Can We Amend the Parking Clause?
Tenants will want any parking charges to be dropped during a period when their business is closed.
How Can We Amend the Common Area Maintenance Clause?
This clause covers what common area maintenance (“CAM”) the tenant has to pay for. If the building is closed and maintenance work is on hold, the landlord might still be paying for it. How to fairly reallocate this cost can be a negotiation point. Amending the landlord’s duty to provide extensive HVAC services might also be reasonable.
How Can We Amend the Defaults and Remedies Clause?
At the end of the lease, you’ll likely see a clause explaining what happens if either landlord or tenant fails to live up to the lease. Of course, all of your amendments thus far have been designed to avoid a default, by relaxing conditions that would otherwise lead to one. Still, you might want to vary this clause, by extending the “cure” period (time the parties have to fulfill their obligations) and by specifying that notice of a default may be delivered via email, if that provision doesn’t already exist.
How Can We Amend or Add a Cosigner’s Clause?
If your original lease has a cosigner, you'll need to ask the cosigner to sign the amendment as well. Otherwise, the cosigner will not be bound by its terms, and might not even be bound by original clauses you did not change. In other words, the amendment might effectively remove the cosigner entirely, so be sure to get a signature.
If you want to add a cosigner, you can do so now. The new cosigner will become bound by both the original lease terms and the amendments.