US Outlook: Top Questions About Commercial Leases & Rent Obligations Amid Coronavirus Outbreak

Recent press reports have highlighted the profound economic impact COVID-19 is having on companies both large and small around the United States—and the ramifications on commercial leases. Across the country, state and local governments are issuing orders that close “non-essential” business altogether, implement curfews, and/or drastically limit the number of consumers who can gather in a single location. As a result, consumer-facing companies of all stripes may find themselves unable to operate at all, unable to operate all aspects of their business at their leased space, or facing a moderate-to-severe decline in revenues as economic activity has come grinding to a halt.

Because of these sudden events, many commercial tenants have found themselves without funds to pay rent. This situation is not limited to small businesses that operate individual locations. For instance, on March 18, 2020, national restaurant chain The Cheesecake Factory sent notice to all of its landlords around the country warning that it would be unable to pay rent due beginning April 1st. Other national retail and restaurant chains, including H&M, Mattress Firm and Subway Restaurants, have sent similar notices to landlords across the country. In sum, inability to pay rent is a major issue for commercial tenants all over the country from small businesses to Fortune 500 companies.

In order to alleviate some of the hardship caused by COVID-19 related economic disruption and closures, the United States Congress, as well as state and local governments, have moved to swiftly pass legislation funding businesses or delaying the negative consequences that missed rent payments portend. At the federal level, on March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, which provides $350 billion in small business loans that may be used to pay rents and other payment obligations coming due. Around the country, some states (including New York) have issued moratoriums on commercial (and residential) evictions, and issued orders requiring that state-regulated financial institutions grant 90-day forbearance relief to qualifying borrowers financially impacted by the COVID-19 pandemic. Similarly, in many courts around the country there is a halt or substantial delay on court proceedings necessary to evict a tenant. In New York, which has been particularly hard hit by the COVID-19 pandemic, the State Senate is currently considering a bill that would provide greater relief to Small Businesses with less than 100 employees by suspending rent obligations for a period of 90 days.

Despite these measures, many commercial tenants across the country still face a dual threat from the COVID-19 pandemic: (1) government ordered closure of their businesses eliminates or substantially reduces revenues; and (2) rent payments are coming due that tenants cannot pay. Landlords who do not receive rent payments may suffer economically as well, particularly where they are unable to pay mortgage or other debt obligations and fail to obtain relief from their lenders or banks.

These hardships have led to questions from commercial tenants and landlords about potential liability, default, termination, and related issues arising under commercials leases which, if not addressed by legislative action, are likely to lead to substantial litigation. This Alert addresses the questions and issues that Quinn Emanuel’s clients are asking about. Of course, these are only some of the myriad issues about commercial leased potentially raised by the spread of the novel coronavirus. If you have any questions about the issues addressed in this memorandum or otherwise, please do not hesitate to reach out to us.

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If you have any questions about the issues addressed in this memorandum, or if you would like a copy of any of the materials mentioned in it, please do not hesitate to reach out to:

Andrew Rossman
andrewrossman@quinnemanuel.com
Phone: +1 212 849 7282

Christopher Kercher
christopherkercher@quinnemanuel.com
Phone: +1 212 849 7263

Rollo Baker
rollobaker@quinnemanuel.com
Phone: +1 212 849 7513

Donald Reinhard
donaldreinhard@quinnemanuel.com
Phone: +1 212 849 7314

Alex Loomis
alexloomis@quinnemanuel.com
Phone: +1 617 712 7120