In the current economic crisis, business owners are asking themselves, Should I pay the rent? We would like to highlight some considerations in making that decision, in a keep-it-simple way.
Nothing is more important than the long-term relationship between a business tenant and his or her landlord. It is great if the business owner and the landlord can work out what they might feel is fair without resort to some legal option. Whatever might be worked out should be properly documented to avoid misunderstandings later on.
If an accommodation cannot be reached, you might want to know about some important recent developments, and how they may affect your landlord’s response to any request for postponement or forgiveness of the tenant’s legal obligations to pay rent. Here are a few:
Freeze on Eviction Actions
For the moment, the Courts in California and a number of other states have stopped the “issuance of a summons” in both residential and commercial eviction (UD) actions. Some Cities and Counties have enacted emergency ordinances which may, in certain circumstances, prohibit a Landlord from filing the unlawful detainer and in some cases even sending a Notice to Pay or Quit. Stopping for the moment the “issuing of a summons” in an eviction lawsuit, or the service of an eviction lawsuit, may still leave in place the main tool that a landlord has if he or she decides to use it, namely a declaration that the tenant lease is forfeited (terminated), and even with the forfeiture of the lease. State and local laws need to be carefully checked.
Possible loss of Lease Rights
Unless the property is in a State, City or County that is temporarily not allowing the service of a Notice to Pay or Quit, the landlord’s main remedy has not changed much, namely a properly worded notice to the tenant that may result in the loss of the tenant’s lease, with the additional threat of the tenant having to pay all or some part or all of the future rent after the tenant is removed.
New or Rarely Used Defenses that Businesses may argue
The current pandemic “may” give rise to certain defenses depending in part on the wording of the commercial lease. For example, if a lease has a “force majeur” clause (also known as “Act of God” clause), performance of an obligation might be delayed or excused in the event of a catastrophe, although the payment of rent is usually excluded from such clauses. Legal doctrines such as “impossibility” and “frustration of purpose” are being considered by some lawyers representing tenants. We are skeptical that this type of defense would be successful in part because real property law does not exactly track “contract law,” in part because in entering a lease a tenant becomes more like an owner of the property (for the limited time of the lease). However, creative lawyers are currently discussing these concepts as possible defenses.
We fully expect there to be significant litigation in which at least some of these defenses are asserted to claims of breach of contract, including those based on a failure to pay rent.
Practical Considerations
In the current economic environment, it is unlikely that the landlord will have a replacement tenant ready to move in within the next few months, so landlords may be inclined to work out something they consider “fair,” regardless of whether they might have the legal right to do. Call it a bird in the hand point of view that the landlord may hold important.
Agreements Regarding Rent
As mentioned above, tenants usually have a long-term relationship with their landlord and can usually work out arrangements that both believe is fair. The arrangements should always be properly documented, usually by way of a lease amendment, or if it is just an agreement to allow rent to be deferred for a few weeks for a particular payment, it should still be documented in a properly worded letter or email.
Further information on the above can be found at www.Karlinlaw.com