By Jonathan Luttwak
"We are all adjusting to a temporary new normal – and I hope you and your loved ones are safe and doing ok given these circumstances."
Questions You may Have
As I have been speaking with clients and lawyers these past weeks I have identified the following key questions.
1. Should my company pay rent this month?
2. Will insurance help?
3. What about companies in a Co-working space?
4. Who do I talk to?
5. What do I do if I can’t pay my rent?
Advice - Start conversations proactively now. There is a lot of noise about what will happen and the truth is no one knows. Below are the facts based on experience in the real estate industry both from years at C&W and now as the CEO of DHC. Relief is coming and the stimulus bill which I read last night is promising. If you want to exchange thoughts or opinions about the stimulus - glad to chat about it. |
1. Should I pay my rent this month or does this crisis allow me to break my lease?
The short answer based on our experience with traditional commercial leases, is yes – pay your rent, and no you cannot break your lease. Covid-19 and subsequent economic fallout does not constitute a legal right to terminate in our view. Legal analysis from Paul Weiss here.
2. What about business interruption insurance?
Unfortunately, from what we have seen so far, most insurance providers will not cover lost rent for an epidemic. Generally business insurance is limited to physical damage and many providers carved out epidemics specifically following the SARS outbreak in 2003. Stroock legal analysis on this here.
3. What about WeWork, Knotel, Regus, Co-working / Space as Service?
We believe in flexible space providers as a category and my own business is currently operating in a WeWork. While WeWork is formulating a plan, legally things are a little ambiguous. Flexible providers use license agreements with their members, not traditional lease documents.
My view (not a legal one) is that while these agreements are enforceable, tenants have more leverage to negotiate a workout given the lower security deposit, term, and limited initial investment into the space.
4. Who do I talk to about this?
Unfortunately, from what we have seen so far, most insurance providers will not cover lost rent for an epidemic. Generally business insurance is limited to physical damage and many providers carved out epidemics specifically following the SARS outbreak in 2003. Stroock legal analysis on this here.
5. There is no way I can pay April 1 rent – what do I do?
There is no easy answer but here are a few things to note.
1. Review your lease so you understand the default provision, notice and cure periods, and personal liability.
2. Seek legal advice - call a lawyer – or call us and we can send a list of lawyers for you to contact.
3. If you don’t pay rent, you are in default under most lease agreements. While NY State halted evictions for 90 days, the legal ramifications choosing not to pay rent, are still unknown.
Relief is likely coming quickly.
I reviewed last night’s version of the proposed federal stimulus package. While it is not yet in final form, many of the provisions are promising. It does appear (almost with certainty for businesses under 500 people) that there will be relief on payroll, rent, and utilities in the form of a loan that converts to a grant.
I will share more information when the legislation is final and we better understand the implications.
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