The current COVID-19 pandemic has significantly impacted commercial landlord-tenant relationships. With large portions of Ontario’s workplaces closed, many tenants are likely feeling the pressure of upcoming rent payments. Tenants may be finding their cash reserves dwindling and revenues decreasing to the point where they cannot make their May or June rent. Even with the recently announced government rent assistance, landlords and tenants may still be left to negotiate any rent relief on their own.
Under most commercial leases, a tenant is required to pay rent without abatement or deferral. Due to the present global health crisis, tenants may try to rely on a force majeure clause in their leases to provide relief. This clause can excuse a tenant from performing certain obligations under exceptional cases. However, most will not excuse the obligation to pay rent. Most tenants will find the best option is proposing a rent relief arrangement to their landlord.
Each rent relief agreement will be unique and considered on a case-by-case basis, however general considerations usually include:
Both landlords and tenants benefit from working together to reach an amicable agreement. The tenant can focus on stabilizing its business, applying for government relief and eventually returning to normal operations. Landlords avoid vacant premises or bankrupt tenants and prolonged legal disputes from tenant defaults.
At KMB Law, our real estate team works with landlords and tenants to reach win-win solutions. Contact Oliver De Guerre to discuss further.
Under most commercial leases, a tenant is required to pay rent without abatement or deferral. Due to the present global health crisis, tenants may try to rely on a force majeure clause in their leases to provide relief. This clause can excuse a tenant from performing certain obligations under exceptional cases. However, most will not excuse the obligation to pay rent. Most tenants will find the best option is proposing a rent relief arrangement to their landlord.
Each rent relief agreement will be unique and considered on a case-by-case basis, however general considerations usually include:
- Type of Relief – if rent is deferred, the tenant will be required to eventually pay back the rent relief, while abatement is considered “rent forgiveness” and is not paid back. The choice of relief may depend on tenant’s financial viability, level of business activity, cash-flow and the landlord’s own obligations.
- Portion of Rent and Length – the landlord and tenant will need to determine if the rent relief is for a portion of or all of the rent owing and if for basic/minimum rent or additional rent as well. Relief agreements may be on a month-by-month basis or for a longer time period. With Ontario’s state of emergency being extended until at least May 12, 2020, consideration should be given to timelines for a tenant being able to reopen their business.
- Repayment Terms – any rent deferral should specify a repayment period, usually longer than( and commencing after) the rent relief period. This repayment period should not be overly burdensome on the tenant as it will be paying regular rent during the repayment period as well.
- Right to Terminate – landlords will protect themselves by including a provision that any default on the repayment of rent will be treated as a default under the entire lease, and permit the landlord to exercise various remedies.
- Confidentiality – as each rent relief arrangement is unique, it is beneficial to both parties to keep the terms confidential.
- Extra Incentives – recognizing that rent relief impacts landlords’ revenues as well, tenants might consider enticing landlords to grant rent relief by including other provisions, such as increased security, guarantees or rent extensions.
Both landlords and tenants benefit from working together to reach an amicable agreement. The tenant can focus on stabilizing its business, applying for government relief and eventually returning to normal operations. Landlords avoid vacant premises or bankrupt tenants and prolonged legal disputes from tenant defaults.
At KMB Law, our real estate team works with landlords and tenants to reach win-win solutions. Contact Oliver De Guerre to discuss further.
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice based on their specific situations.
