With many state and local governments continuing to roll out measures to minimize this most recent wave of COVID-19, many tenants are asking commercial property landlords for rent relief. Retailers, restaurants, hospitality, and other consumer-facing businesses have undoubtedly been hit hard by this pandemic. Many restaurants in particular were forced to close or reduce capacity to the point of unprofitability by state or county mandates.

While many of us thought in March of 2020 that this would all be a temporary inconvenience, we now know it’s not going away anytime in the immediate future. We also don’t know if there will be a need for the United States to enforce lockdowns similar to the ones we’ve seen from European nations in response to this second wave of the virus.

Before a landlord negotiates concessions with a commercial tenant, here are four things to consider:

TENANT RELIEF COULD BE LIMITED BY LOAN DOCUMENTS – Many loan agreements include financial covenants. These are financial promises or agreements that must be maintained through the term of the loan. Commercial property owners need to be sure that reducing a tenant’s rent doesn’t reduce their net operating income in a way that triggers a default of the terms of their loan. Additionally, they need to make sure their loan docs actually permit any modification or termination of the lease. This includes permission to lessen the monthly rent amount while staying within the terms of the lease.

IS THIS THE OUT YOU’VE BEEN WANTING – Many landlords had financially struggling tenants even prior to the pandemic. A tenant that was struggling then is certainly not in better financial condition now. While COVID-19 has limited the enforcement of evictions, landlords could use recent events as an opportunity for both parties to mutually agree to terminate their lease early.

BE SURE RENT IS DEFERRED, NOT ABATED – Any reduction of rent needs a lease modification or forbearance agreement documenting it. This agreement needs to state the rent is deferred, not abated, for a defined period of time. The tenant should provide financial information before any rent deferral is approved. Language in a modified lease agreement should make the tenant responsible for repaying any deferred rent or landlord costs like attorney fees in the future. This can be done in one large lump sum payment or repaid in time over the balance of the term. It is also recommended that the tenant or a credit-worthy cosigner signs a promissory note for the deferred rent. This would also be an ideal time to comb through the lease for any tenant-friendly provisions that could be problematic through a time like this – exclusive-use rights, prohibited uses, co-tenancy provisions, etc. A co-tenancy provision in a retail lease will provide a tenant with certain rights or protections (including rent abatement, deferment, or termination) if a certain percentage of tenants in a building or shopping/office complex is closed or have reduced hours for a specific period of time. This might be something you want removed at a time like this.

REVIEW & UNDERSTAND EFFECTS OF FORCE MAJEURE – The majority of lease agreements today will contain a force majeure provision. This provision will suspend performance of a party if certain specified events happen that are beyond that party’s control. Incidents in this clause might include natural disasters, war, or acts of terrorism. A force majeure provision might also contain some catch-all language for instances beyond either party’s control. Without this type of catch-all language or specific mentions in the lease, most courts won’t suspend a party’s performance due to a pandemic or disease. Additionally many leases won’t excuse rent payments due to a force majeure. Landlords should consider force majeure clauses to protect them from COVID-19 related construction or delivery delays, co-tenancy violations, and the provision of services as defined in the lease.