As we’re in a new month, rent and mortgage payments have become due and the real estate world continues to navigate through the pandemic. Tenants are looking for ways to save money and keep their businesses open, and landlords are requesting forbearance from their lenders or approvals to enter into lease modifications.
This April, and looking to May, owners and occupants of real estate should review their principal legal documents. Leases and loan documents will dictate each parties respective rights and obligations. Additionally, parties trying to buy or sell real estate should be knowledgeable about the current obstacles to close a transaction in this economy. Here’s what you can do now.
- Read through your leases to understand your rights. You should take a look at your existing leases for any “default” and “force majeure” provisions. If you miss a monthly payment of rent, does your landlord need to provide you with written notice? Does your lease provide for a grace period? This may give you more time to get your finances in order or request rent relief. Make sure you know if there’s a force majeure or act of God provision in your lease (we’ve broken down what those mean here) as that could excuse performance for a period of time. See if the provision specifically covers pandemics, widespread disease or similar emergency situations. Then, follow the required notice provisions to enact the protection of the clause. Make note that the protection will not be indefinite and usually doesn’t apply to payment obligations due to a lack of funds or insolvency of a party.
- See if your loan documents require approvals for lease modifications. It’s a good idea to review your existing loan documents for approval rights and other key provisions relating to lease modifications. If you’re considering amending a lease, review your loan documents to determine if your lender has any approval or consent rights over: lease amendments, concessions, waivers, extensions, settlements, default notices or application of security deposits. Also see if your lender’s rights are applicable to all tenant leases or just certain “major tenant” leases.
- Take another look at your purchase agreement. Consider the status of your real estate purchase agreement. Is your due diligence period about to expire? If you don’t want to simply terminate, consider asking the seller for a more limited contingency tied to COVID-19, and the performance by your lender and the title company as expected. If both purchaser and seller still plan to move towards closing, make sure that the local recorder’s office is able to handle recordings electronically and the title company will not be imposing any new requirements due to COVID-19. In many cases, due to possible delays in recordings, title companies may ask for broader indemnities from the parties. Of course, also plan to sign and deliver documents as early as possible, and confirm where they should be sent (as many title company escrow officers are now working from home). Finally, if you are a purchaser with no further contingencies under your purchase agreement and you or your lender are now reconsidering the merits or feasibility of the transaction, please discuss with your lawyer right away.
For more resources and LP's response to COVID-19, visit this webpage.