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APRIL 2020 COMMERCIAL TENANCY RENTAL PAYMENTS IN THE FACE OF COVID-19

As a result of the COVID-19 pandemic, commercial landlords and tenants are now faced with difficult decisions regarding their ongoing relationship.  Landlords and tenants alike must revisit their leases and scrutinize each clause to determine their respective obligations.  Ultimately, landlords and tenants should work together to find common ground regarding relaxation of lease provisions addressing rental default and timing of payment obligations.  Dialogue now will ultimately prove more useful than the termination of tenancies and resulting litigation.

Both New Jersey and New York courts have effectively halted any landlord eviction actions against tenants in the short term.  Although New Jersey has instituted a moratorium on only residential evictions and foreclosures, on March 27, 2020, Chief Justice Rabner suspended all landlord/tenant calendars through April 26, 2020.  The suspension of the landlord/tenant calendars makes it impossible for any commercial landlord to evict a tenant currently in default.  Further, in light of the Federal Government’s edict yesterday to extend the “social distancing” guidelines through April 30, 2020, it is safe to assume that the suspension of the landlord/tenant calendars will be extended in New Jersey.

New York has expressly halted both commercial and residential eviction proceedings until further notice.  In addition, Governor Cuomo has instituted a moratorium on both residential and commercial tenancy evictions. NYS Exec. Order No. 2028 (March 22, 2020) states that “There shall be no enforcement of either an eviction of any tenant residential or commercial, or a foreclosure of any residential or commercial property for a period of ninety days.”  Despite a warning from the New York City government expressly stating that tenants are not excused from paying rent, landlords will be left with no enforcement mechanism because landlords will not be able to file an action until June 22, 2020 at the earliest.  Once again, it is safe to assume that this timeline will be extended.

The unavailability of judicial remedies should incent the parties to a commercial lease to find another solution.  It goes without saying that both commercial landlords and tenants would prefer to avoid costly eviction proceedings.  Most landlords have had experience with struggling tenants and have found ways to maintain the relationship by modifying lease terms.  Some potential modifications include (a) reduction of the monthly rental obligation; (b) drawing against the security deposit which the tenant can replenish at a later date; or (c) forbearance of payments to be satisfied in later months through increased rent or a single balloon payment at the lease’s termination.  A commercial lease should be modified to achieve the primary objective of preserving the tenancy, especially in the face of these unprecedented times.

If you are seeking to modify your lease terms, it is important to determine the impact that any modification may have on other provisions of the agreement, including monthly expenses over and above the base rent.  Please contact either Rich Angowski () or Jason Hawrylak () to discuss your immediate needs.