presented by: shervonsmall, supervising attorney rolando ... le… · lease options: termination...
TRANSCRIPT
Amended from Presentation ”Navigating Commercial Leasing, Insurance Claims and Other Legal Issues During the Pandemic”
Presented by:Shervon Small, Supervising Attorney
Rolando Gonzalez, Staff AttorneyThe Legal Aid Society
Community Development [email protected] or (212)
426-3000This workshop is presented for educational purposes only and does not provide legal
advice or counsel regarding your actual circumstances. Please consult an attorney prior to making any decisions regarding your particular situation.
A Commercial Lease is a Type of Contract
■ A lease is a contract, the terms of which govern the landlord and tenant relationship.
■ A tenant’s rights are basically limited to those contained in the lease document.
■ Currently there is a moratorium on evictions, including commercial evictions. However, there is no suspension of rent payment.
■ Tenants should look to their lease to determine if they have any remedies.
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Commercial Leases
■ A typical commercial lease states that payment of rent is an independent obligation from landlord’s obligations under the lease.
■ There is normally no right to offset rent under a lease unless this right has been negotiated into the lease specifically.
■ Thus, most commercial tenants are likely still obligated to pay rent and comply with all their lease obligations (i.e. payment of real estate taxes, utilities, maintain insurance, etc.).
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Lease Options: Negotiate
■ If you can’t pay your rent contact your landlord. You may be able to negotiate an agreement, such as a reduction of rent, waiver of rent, or a payment plan.
■ Be cooperative and forthcoming when trying to work out a solution.
■ Don’t be hesitant to talk to your landlord about concessions or renegotiating your lease during the negotiations. (Even lease provisions not related to payment of rent can be addressed.)
■ Anything can be negotiated.
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Lease Options: Termination■ Commercial leases do not typically contain termination provisions
unless there is a casualty that results in the property being destroyed and usually this only benefits the landlord.
■ However, commercial leases are not uniform and can vary greatly. Review your lease to determine your obligations and remedies/legal options.
■ Commercial leases usually contain penalties for terminating the contract early, including: acceleration of rent, repayment of rent credit, liquidated/monetary damages, etc.
■ Negotiate with your landlord a waiver or reduction of any penalties for terminating your lease early.
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Lease Options: Termination■ Review your lease for any end of lease term obligations including
restoring the space to its original condition at the end of term. (Also negotiate ownership of fixtures.)
■ Consider whether you are personally liable for rent or additional rent due for the remainder of the lease.
■ Factor in whether you signed a lease in your personal capacity or in the name of an entity, such as an LLC or corporation.
■ If the tenant on the lease is an LLC or corporation, you should check whether you signed a personal guaranty. If so, does your lease contain a “good guy” clause.
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Lease Options: Tenant Defenses■ “Force Majeure” clauses temporarily excuse non-performance caused
by events beyond the nonperforming party’s control, such as war, terrorism or “Acts of God” (e.g., natural disasters).
■ Not every commercial contract contains a force majeure clause. Also, not every force majeure clause will cover every type of disaster or event that prevents a party from performing.
■ Courts interpret force majeure provisions narrowly, and will frequently insist that the event giving rise to the suspension or termination of the agreement falls squarely within one of the defined events. Force majeure events must be included in such a clause and specifically state that the tenant is excused from performance.
■ Review your lease. Most leases only excuse the landlord from performing their obligations.
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Lease Options: Tenant Defenses
■ A party sued due to their non-performance can argue impossibility or frustration of performance and ask the court to find that the lease should be held unenforceable. However, New York courts apply this doctrine very narrowly, and tenants must meet a very high burden.
■ Unless the law changes or the lease provides for the suspension of rent, tenants will likely be liable for the rent obligations required in their lease.
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Commercial Lease Defaults■ Know the terms of default in your lease.■ Events that may trigger a default (a violation of the lease) include:
■ Failure to pay rent■ Failure to perform obligations (e.g. maintain insurance)■ Assigning or subletting without consent of landlord■ Vacating or abandoning the space
■ Check whether you have a notice provision and chance to cure the default.
■ A default that is not corrected may lead to termination of tenancy and eviction.
■ A commercial tenant is usually liable for a landlord’s legal fees in eviction proceedings. (Review your lease.)
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Commercial Leasing Tips During the Pandemic
■ Review your lease and know your obligations and rights.■ Try to work out a solution with your landlord.■ Don’t be hesitant to talk to your landlord about
renegotiating any provisions in your lease. (Rent, Additional Rent, Permitted Use Clause, Assignment or Sublet, Lease Renewal, Lease Extension, etc.)
■ Leasing is market driven. A landlord may prefer to have occupied space versus vacant space even at a reduced rent.
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Commercial Leasing Tips During the Pandemic
■ Make sure to get any agreement in writing. ■ Oral agreements will not protect a business.■ Don’t forget about notice provisions or deadlines
(e.g. exercising a renewal option)■ Be proactive in dealing with potential lease
defaults.■ Don’t ask, don’t get!
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If you need further assistance, please contact The Legal Aid Society, Community Development Project at (212) 426-3000 or [email protected]
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