With restaurants facing mandated dining room closures and decreased sales in the wake of COVID-19, many operators are struggling to make this month’s rent. To find out what options are available to them, Eater turned to go-to restaurant lawyer Jasmine Moy to learn more.
”I know it’s easier said than done, but if you can, try to relax and understand that most landlords want you to survive as a business and to stay in their premises,” Moy says. “Landlords understand that if they were to lose a tenant now, that there’s a great deal of uncertainty about when and how they’ll find the next tenant, and at what price. Their goal is to collect rent and your goal is to have a business that can afford to pay it. We’re all in this together and everyone, including your landlord, wants to see you up and running on the other side of this.”
Read on for more about how to start a conversation about what you can and can’t do for your lease.
Disclaimer: The materials available in this post are for informational purposes only and not for providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
Q: How does COVID-19 affect my obligations under my lease?
A: It depends — and it’s worth revisiting the language in your lease to find out.
While your obligations will depend entirely on what is actually in your lease and what you or your attorney may have negotiated before you signed it, if you are looking for relief from your lease obligations and think that the “force majeure” clause (which usually comes into play during natural disasters and following acts of war) will aid you at this time, you’re likely to be disappointed. Even in the best circumstances, the force majeure clause usually only affects the landlord’s ability to claim a “default” (any failure to perform some lease requirement is a default) by you, the tenant, with regards to everything but the payment of rent and additional rent (e.g., your taxes and utilities). This means that a closure due to the pandemic might relieve a tenant of their obligation to make repairs to the premises required under the lease but more than likely doesn’t relieve the obligation to pay the landlord the monthly rent.
Q: So if my lease doesn’t get me out of paying rent, what should I do?
A: Communicate, communicate, communicate!
If you have a good working relationship with your landlord, great! Reach out to them (or have your attorney reach out to their attorney) to open the dialogue about what to do next. Your approach doesn’t have to be super formal, but you want to: 1) acknowledge the hardship and let your landlord know what you’ve had to do with your business operations (whether you’ve shut down entirely or reduced service to takeout/delivery only) as a result of city or state requirements; 2) acknowledge that this is unprecedented and that you are looking forward to working together to find a solution; 3) get some confirmation that they are willing to look into some combination of abatements/deferrals/reductions and confirm they’ll be ready to document that in a lease amendment in the coming weeks; and 4) get confirmation that they won’t issue any default notices (for nonpayment of rent or otherwise) in the meantime.
Note: I would not say outright that you will not be paying rent, as within your lease there may be language that allows the landlord to claim you’re in default if there is a “threatened breach” and telling the landlord in advance that you won’t be paying rent would likely qualify as a threatened breach. Some leases also have opening hours requirements, so there may be a couple different areas in which you’re technically in default at the moment; be cautious of that, and have your own attorney discuss with you the risks involved with any communication with your landlord.
Anecdotally, I have sent many messages to landlords’ attorneys for my clients and they have universally thanked me for being proactive and have said they understand and are looking forward to working through this together. Obviously, you want everything you eventually agree to with your landlord in writing and signed by both parties, but there is an argument for waiting to see if the federal or state governments offer any assistance or credits to landlords and tenants as a result of the pandemic. Most the conversations I’ve had with those landlord’s attorneys have resulted in a “let’s check back in with each other in a couple weeks,” so we’re planning on revisiting how to set this down on paper when we know more about how long these restrictions might be in place and (hopefully) what aid may be available, which should be taken into consideration when renegotiating the lease terms.
If you have a bad, or adversarial relationship with your landlord, it might be better to have your attorney review your lease to let you know exactly how and when the landlord can claim you’re in default. It also may be better to have your attorney reach out to the landlord’s attorney in a more formal way, as they may have more civil conversations with each other than you and your landlord. Your attorney may also assist you with finding defenses to any defaults your landlord might claim, and can prepare to protect you at a moment’s notice if your landlord does claim a default at this time.
Q: What should I do if I have not paid rent and my landlord has sent me a default notice?
A: First, notify your attorney immediately.
Usually your lease will stipulate that you have a certain limited number of days to cure a default (e.g., perform a required part of your lease, like paying rent) before a landlord can try to terminate your lease and evict you, so any move you make has to be made before that clock runs out. Your attorney can first try to make an arrangement to settle the issue by negotiating some abatement and/or deferral with your landlord, but your attorney may also need to file an injunction. Real estate rules vary quite a bit state to state. There are likely particular laws and structures set in place as they relate to landlord-tenant litigation that may apply to your situation, so you should talk to a licensed attorney to evaluate the full range of options available to you.
Regardless, in case you couldn’t already tell, time is of the essence and any default notice is serious business (both for your company and for you, personally, assuming you signed a personal guarantee as part of your lease).
Q: Can my landlord evict me for nonpayment of rent?
A: It depends on where your business is located.
Some cities and states have created tenant protections in the wake of the pandemic, so talk to a local attorney for a definitive answer that applies to your business. In New York City, where I am based, there is a hold on all eviction proceedings and the governor of New York has ordered the shutdown/rejection of new cases indefinitely with any timelines for filing “tolled” (paused) unless the case qualifies as an emergency (and what does/doesn’t count as an emergency is a tad fuzzy at the moment). Because there’s no definitive time frame on this, if the pandemic is deemed to be under control in a matter of weeks, the ban on new cases could be lifted whenever the government deems it so.
The entire Q&A above is subject to change as many city and state governments are scrambling to provide small business protections, so I cannot stress enough that you should consult with a local attorney about your options.
This is also as good a time as any to call your elected officials to demand protections for small businesses and workers and, while you’re at it, please visit https://www.saverestaurants.co/ to add your voice to their efforts as well as signing the ROAR change.org petition here.
Jasmine Moy is a business attorney whose practice focuses on chefs, restaurateurs, and hoteliers.