Office tenants are asking important questions as to the impact COVID-19 virus is having on leasing office space and paying regular recurring rent.
Following are six frequently asked questions:
If we are sheltering in place and everyone is working from home, do I still need to keep paying rent?
Yes. Rent abates only if there is a fire or other casualty like a storm that results in the space no longer being usable for a period of time because of physical damage to the space. This is known as Force Majeure, a legal term referring to an Act of God that results in some physical damage.
My business still can’t use the space, so, how is this different?
The space is still physically habitable. Fear from the pandemic is preventing people from traveling or congregating, but there has been no physical damage to the space.
What remedies do I have?
One option is rent interruption insurance. Companies may have obtained rent interruption coverage in the event of a business downturn or some unseen event resulting in its inability to pay rent for a period of time. However, most rent interruption insurance is obtained by landlords and is also linked to the physical damage of the space. In all likelihood, this remedy may not work with COVID-19.
How do I know if my insurance policy has such a provision and what would qualify?
Short answer: contact your insurance carrier. Tenants typically have a liability policy, and in most cases, unemployment insurance for protection of employees. Situations that require rent interruption insurance are quite rare, and the policies themselves can be rather expensive and limited in their coverage. We do not typically see tenants purchasing rent interruption insurance.
What should I do if I can’t pay my rent this month?
Be proactive and communicate with the landlord, sooner than later. Let the Landlord know exactly what your situation is. Be prepared to discuss financial detail of how the pandemic has impacted your business.
What type of assistance is available?
The effects of “sheltering in place” are far reaching and still evolving. There are certain programs available for retail, restaurant and hospitality sectors. Also, the Paycheck Protection Program (PPP) will help businesses retain employees and provide stopgap funding for the short term. We have heard that many small businesses have insufficient reserves for this type of event and may fail, regardless of government assistance.
Beacon Street Realty Advisors is available to assist you. Please call Mitch Jacoby @ 978.476.1223 or connect via LinkedIn to arrange for a confidential discussion about your situation.