Commercial Lease Clauses for Pandemics

New York Real Estate Journal recently published an article authored by Olshan Real Estate partner Thomas Kearns entitled “Commercial Lease Clauses for Pandemics.” With a year into the COVID-19 pandemic, the article provides ideas for drafting lease clauses agreeable to both landlords and commercial tenants with negotiating power in light of emergency laws that expressly prohibit the use of the space for the intended purpose. “By restricting the clause to full closures,” Mr. Kearns explains, “the ideas give landlords a definitive standard to measure before giving relief to a tenant while at the same time protecting the tenant from a full disaster.” First, if a space is wholly unusable by law, commercial tenants should consider asking for a clause to reduce or delay rent by some percentage: “Whether that reduction is 25%, 50% or 100% is subject to negotiations among the tenant, the landlord and its mortgagee.” Second, the clause should outline a waiting period before the rent reduction would take effect but should also prohibit the tenant from using the space for any purpose during the forbearance/forgiveness period. “Again, a bright line here helps the landlord feel that the clause won’t be invoked unfairly while giving the tenant real protection.” Lastly, a clause should honor a landlord’s right to terminate the lease following a period of time after the forbearance/forgiveness period starts, requiring the tenant to decide within that time period whether or not to pay up in full. He writes that “This protects the landlord from the loss of revenue that another tenant for a then lawful use would pay, and from a tenant under a below market lease dragging well into the lease term holding up the landlord from starting the process to find a new tenant.”