The 3 Month Rent Waivers Are Fast Expiring– Now What?
Jun 29, 2020
As a commercial real estate broker, I have been inundated daily by calls from clients on what to do about paying their rent. Since the pandemic hit the US in the middle of March, most tenants paid their rent in April, however since their businesses were closed due to the mandated shut down, most were already looking for ways to not pay rent or defer rent payments until they could reoccupy their offices.
The City of San Francisco, and eventually the state, mandated that no businesses could be evicted during the shelter- in- place ordinance. If a tenant failed to pay the rent, it is was up to the landlord to send a letter stating that rent was not paid. The tenant would then have to show evidence as to why they couldn’t pay their rent.
Most businesses turned to their insurance companies, hoping that their ‘business interruption’ insurance would cover their rent, but quickly learned that most insurance policies do not cover pandemics. PPP assistance became the buzz word to help businesses pay the rent. But eventually, they learned that the loans were to be used first for employee retention.
They were then hoping for government loan programs to help, but learned that the system was overwhelmed with applications and most owners are still waiting to hear back.
The tenants who were successful in getting a three-month waiver on rent started in April. However, we are quickly approaching July. The waivers expire and offices are still not allowed to open. So, the question needs to be asked– now what?
Most real estate attorneys argue that this pandemic triggers “force majeure,” which refers to the occurrence of an event which is outside the reasonable control of a party and which prevents that party from performing its obligations under a contract.
Some leases do have force majeure provisions, but many do not. One attorney friend of mine indicated that it could be argued that it does not make a difference if a lease protects a tenant from force majeure, the judge could rule it is in effect anyway.
All eyes are on a recent case in Chicago where a judge has ruled that rent payments are not owed because of force majeure. This is a complicated case involving a tenant’s bankruptcy prior to the commencement of the shutdown. However, the judge ruled that force majeure was in effect for the rent payment owed between March and June. If this is upheld, this could have wide-reaching implications for cities across the country effected by shut downs.
We are also learning that after positive results of businesses working from home for the last three or four months, that companies are starting to change their thinking. Gensler Architects recently did an international study, “U.S. Work from Home Survey 2020” to help provide greater insight into the work from home experience and how the workplace will be designed in the post-COVID world.
The study surveyed 2,300+ full-time U.S. office workers at companies of 100 or more people from April 16 to May 4 and found that only 12% of U.S. workers want to work from home full-time.
Businesses are finding it more and more difficult to create company synergy through constant zoom meetings. Also, workers are complaining that they no longer are working just 9-5pm, five days a week. Instead, boundaries are blurred and most employees are working longer hours and seven days a week.
Businesses are uncertain as to whether their existing office spaces will meet their future demands when they do reopen. Some believe their current spaces are too big since layoffs, while others now need more space to accommodate social distancing requirements between employees.
As a result, my company has launched a new service called TradeAddresses.com which allows businesses to post their existing offices for free in a private and securer portal while browsing other offices for a trade. This service was highly effective back in the Dot.com market of the early 2000s and we believe it is the right solution to meet today’s uncertain times. Visit TradeAddresses.com for more information.
Written by: Hans Hansson
Hans Hansson is President of Starboard Commercial Real Estate. Hans has been an active broker for over 35 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email firstname.lastname@example.org or call him at (415) 765-6897. You may also check out his website, hanshansson.com.