Charlotte office Managing partner Dan Huffenus spoke to the Charlotte Business Journal about the impact of the novel coronavirus (COVID-19) pandemic on tenants and landlords. Dan specifically discussed if a "force majeure," a term referring to the "unforeseen circumstances" provision found in commercial tenant leases, can be enacted, given the current pandemic is defined as an unforeseen circumstance.
In the wake of COVID-19, many businesses have been forced to close, with the virus having killed more than 26,000 people worldwide. Last week, North Carolina Governor Roy Cooper ordered all restaurants and bars across the state to close for dine-in service, leading to thousands of layoffs and questions concerning whether businesses can survive being closed for weeks, prompting difficult conversations between landlords and tenants who may not be able to pay rent.
"Landlords get it," Dan said. "They'd rather see a tenant defer rent but they’ve got bills and payments to make…it's a complicated chain."
To claim a force majeure event, a tenant must provide a formal written notice with evidence. Other than force majeure, there are also short term solutions that tenants and landlords can engage in, such as negotiating terms to defer rent payment for a few months.
However, not every lender can automatically grant an extension. The ability to do so often depends on the structure of the debt and the property owner’s payment history. Dan said that structured debt products, such as commercial mortgage-backed securities loans, are a "bit of a moving target."
While no real estate sector is immune from the impact of the pandemic, currently hotels and retail are the properties that will be most affected, in comparison to multifamily and office properties. According to Dan, there should be broad acknowledgement that the impact of the pandemic on rent and loan payments is a collective problem.
"Playing the blame game is not going to help anybody work through these problems," Dan said. "I think people need to recognize that it is societal, and we all need to feel a little bit of pain and work together."
Read "So what's 'force majeure' anyway? Attorneys talk options for landlords, tenants as April 1 looms," in its entirety.