Business-Minded Legal Solutions

Commercial landlords weigh ‘pandemic clauses’

The COVID-19 pandemic continues to devastate businesses – big and small – across Texas and the rest of the nation. The sharp decline in sales not only hurts retail companies’ bottom lines but leaves many unable to make rent payments to commercial landlords.

The effects of the pandemic place landlords in a precarious position. Many who aren’t receiving rent payments are also seeing a surge in vacancies as tenants cannot afford to renew leases due to the crisis that began in March. But, some landlords are considering a creative approach.

Adapting to a crisis

Some commercial landlords suffering from financial losses and increasing vacancies have begun inserting pandemic clauses into new leases. It’s a compromise, of sorts, helping both parties deal with the economic realities of COVID-19.

While the language in these agreements varies depending upon the unique circumstances, some state that in case mandatory shutdown orders resume, some or all rent payments can be deferred until the order ends. That gives tenants more flexibility, knowing they get a break when they’re not open for business.

The arrangement also benefits landlords in that they can at least have some money coming in during a crisis to make their own mortgage payments. Plus, it’s a good-faith effort that encourages many tenants to renew their leases during uncertain times.

Will pandemic clauses endure?

While far from being a standard part of a commercial lease agreement, pandemic clauses represent an inventive response to a 2020 challenge. Once COVID-19 is no longer a significant factor, landlords may decide to revert to more standard leases.

However, some see this clause as an opportunity to attract tenants and possibly even charge more for rent in exchange for an increased level of protection. Time will tell whether pandemic clauses become a mainstay in lease agreements, or just a novel approach to a challenging time.