Commercial Leases & Real Estate
The COVID-19 pandemic has had an unprecedented impact on businesses and our economy, with many businesses being forced to close. As a result, many business owners are trying to figure out how to pay their rent (in addition to their employees and many other financial obligations) and stay in their space so they can (eventually) resume operations and start to rebuild their business and repair the damage caused by the COVID-19 pandemic.
What happens if a commercial tenant cannot pay rent due to the COVID-19 pandemic?
Although the initial moratoriums on evictions only applied to residential tenants, on April 1, 2020, Oregon Governor Kate Brown issued Executive Order 20-13, which ordered a moratorium on certain terminations of non-residential (i.e. commercial) leases due to the tenant’s nonpayment of “rent, late charges, utility charges, or any other service charge or fee”. The moratorium is effective immediately (04/01/20) and continues for 90 days (until 06/30/20), unless extended or terminated by Governor Brown.
However, the moratorium does not relieve tenants of their obligation to pay rent (or other amounts due under their leases, except for late fees and penalties). In other words, although tenants may not be evicted due to nonpayment of rent, tenants must (eventually) repay all amounts owed (other than late fees and penalties). Unfortunately, the order is not entirely clear on when these amounts must be repaid — so, without further clarification, tenants should assume that all unpaid amounts must be repaid upon expiration of the moratorium. Presumably (or hopefully), Governor Brown will issue some clarification on this before the moratorium expires.
In any event, if you are a tenant, you should not simply skip your rent payments. In fact, the executive order states that any “tenant who is or will be unable to pay the full rent when due under a rental agreement or lease, shall notify the landlord as soon as reasonably possible; and shall make partial rent payments to the extent the tenant is financially able to do so.” Additionally, “within 30 calendar days of unpaid rent being due,” the tenant must provide the landlord “with documentation or other evidence that nonpayment is caused by, in whole or in part, directly or indirectly, the COVID-19 pandemic.”
What if I signed an agreement to purchase (or sell) real property but we have not closed yet?
If you were in the process of purchasing or selling a commercial (non-residential) property when the COVID-19 pandemic hit, it is likely that you will want to terminate your purchase agreement (or otherwise negotiate a different price or other terms).
The first step is to review your purchase and sale agreement to determine whether you have a right to terminate the agreement.
If you are the purchaser, it is possible that you have the right to terminate during your “due diligence” period – but you should review the relevant provisions carefully to make sure that you can properly terminate the agreement as a result of the COVID-19 pandemic. In other words, it is possible that your right to terminate is limited to the failure (or non-occurrence) of specific conditions (or contingencies), such as an inability to obtain financing, the discovery of structural or environmental issues at the property, or issues related to the title of the property.
If you are the seller, you may not have the right to terminate (unilaterally), but it is (still) worthwhile to review your agreement for relevant terms.
Otherwise, given the uncertain and ongoing nature of the COVID-19 pandemic, you should consider contacting the other party to discuss how to proceed. It is likely that both parties might be willing to terminate the agreement (regardless of whether the agreement gives one or the other party the right to do so).