Legal Implications of COVID-19 on Commercial Real Estate

Partners James Papadimitriou, Charlene Schafer, and Isabel Henkelman share the key impacts of COVID-19 on the commercial real estate sector and back to work considerations as we prepare for reopening the economy.

  1. What to do in the absence of a force majeure clause – there must be a force majeure clause in the agreement in order for a party to invoke force majeure. If there is no such clause and an event has made the performance of a party’s obligations impossible, such party may be able to rely on the doctrine of frustration. Case law on this doctrine is sparse and careful consideration must be given to the facts. In the leasing context, the payment of rent is usually carved out of force majeure clause, in which case, tenants are still obligated to pay their rent.
  1. Rent deferral strategies – commercial landlords and tenants have adopted various strategies to address situations where tenants are not able to pay rent. While simple deferral or abatements are commonly known solutions, other tenant-specific solutions include converting tenant inducements into rent abatement and revisiting percentage rent. Available relief should be taken into account, including business interruption insurance and government programs.
  1. Transactions are still being completed – loan agreements are being revised to address current challenges by considering more frequent reporting requirements and forbearance, for example. Acquisitions and dispositions are closing smoothly with the effective use of technology and, in some provinces, title insurance.
  1. Collaboration is key – in some cases, strict enforcement of contractual rights may not possible, practically speaking, and positive outcomes can be achieved through collaboration. A tenant’s financial position or physical distancing guidelines may make it impossible for tenants or landlords to perform some of their obligations under a lease and litigation may not resolve the issue. Current court closures are another incentive for parties to collaborate in finding arrangements.

To see a recording of the webinar presentation Legal Implications of COVID-19 on Commercial Real Estate, please email the Events team at [email protected].

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