First and foremost, RMWBH hopes that everyone is staying safe and healthy during these uncertain times. The health and safety of our friends, clients and colleagues is paramount, but we also recognize that people need to continue to operate their businesses as best as they can.
COVID-19 is impacting businesses and will continue to do so. As the COVID-19 pandemic has developed, we have received many phone calls from concerned clients asking how they should be handling their commercial lease payment defaults as well as other issues. In this article, we will answer several of the common questions we have received.
Does the Texas Supreme Court’s Order to stay of evictions apply to commercial leases?
- The short answer is no. The Texas Supreme Court’s Order dated March 19, 2020 only applies to residential evictions and does not apply to commercial tenants and landlords. This may change in the future but, as of now, evictions from non-residential properties are not covered by this Order. If a commercial tenant is in default, unless there is something in the lease that prohibits it, the landlord may exercise all remedies available in the lease after providing any requisite notices.
Is a tenant excused from making their rent payment?
- It is very unlikely that a Tenant is excused from paying rent or any other financial obligation under the lease. To be certain, in the event a Tenant fails to pay rent or fulfill its other obligations under a lease; the lease should be immediately reviewed to determine if there is a lease provision that would excuse compliance. [for example – an applicable force majeure provision] In the event that a Tenant is unable to pay monthly rent payments, which includes base rent or any other monthly financial obligations to the Landlord, then it is the responsibility of the Tenant to request any extension of modification of the lease obligations. A concession offered by some Landlords includes temporary reduction of rent which may include a future increase in rental obligations.
- As a Landlord, we would encourage you to start conversations with your tenants as soon as any default occurs. It is possible that working together with your defaulting tenants will provide you a more realistic picture of changes in future revenue. This information will also provide you with the data necessary for the landlord to communicate with its lenders in the event that there is concern of the landlord meeting its financial obligations.
- If a Tenant fails to make their rent payment, then upon review of the lease agreement, a Landlord may pursue any available remedy.
- Landlords should consult with their attorney before initiating any remedies as many, but not all, local governmental entities have issued additional orders that prohibit or limit landlords from certain actions against tenants.
- Evictions are governed by the Texas Property Code §§ 24.001 to 24.011. Landlords are strongly encouraged to consult with their attorney prior to taking any adverse action against a tenant, such as locking the tenant out.
- Landlords are encouraged to consult with their attorney prior to negotiating any lease modifications.
Can a Tenant break or get out of its lease?
- This question is a little more difficult to answer as this will require an analysis of each individual lease agreement, since all lease agreements are different and unique.
- Landlords and Tenants should be reviewing their leases to determine if there are any provisions or clauses that are tied to the overall operation of Tenant’s business or other provisions which may allow for termination of the lease.
- These may be triggered while the shelter-in-place or stay-home-work-safe orders are in effect.
What rights does a Tenant or Landlord have if the other is not providing an agreed upon service?
- Leases normally have independent contract considerations and if that is the case the rent is due even if the Landlord cannot fully perform. Landlords should continue to provide services to its tenants to the extent permitted by the orders of local and state government.
- Tenants that are in essential industries and businesses should expect to have a place of business that is usable and if for some reason a landlord cannot provide a workplace as agreed in the lease, communication should not be delayed as such could result in litigation.
- While there are rights set out in the lease agreement, it is often the best result to negotiate a modification that both parties can honor and live with.
What is Force Majeure? Is COVID-19 considered a Force Majeure?
- Force Majeure is defined as unforeseeable circumstances that prevents someone from fulfilling a contract.
- The analysis of whether COVID-19 is or is not a Force Majeure event is heavily based upon the lease agreement.
- The courts have not yet had a chance to provide guidance on this question or provide insight on how they will determine if COVID-19 will be considered a force majeure event or not. COVID-19 is such a unique world event that the written lease and any subsequent modifications to the lease will be crucial to a court’s decision-making process.
- Force Majeure suits have already been filed but the results will take months, if not years, and the result will be limited to the specific language submitted to the court.
How can a Landlord and Tenant modify the Lease Agreement?
If Landlord and Tenant have agreed to a modification of the lease, especially if it relates to financial obligations or occupancy, it is strongly recommended that both parties consult with their attorney. These types of modifications have long lasting ramifications for both parties that will likely extend beyond these uncertain times, which is why it is crucial to discuss these agreements with an attorney before signing any type of lease modification.
Every lease agreement is unique and any question you may have regarding your rights will be governed by the lease agreement. You should also take the time to review your general liability and business interruption insurance policies and note any exclusions related to the virus. Additionally, it is highly encouraged that you review your local and state government orders to see if they impact your rights and obligations under your lease.
For specific questions regarding your lease do not hesitate to reach out to us. Our firm has consistently invested in technology and in this current crisis it permits us to access your files and assist you from any location. Our attorney directory is online at rmwbh.com/attorneys.
 Texas Supreme Court Misc. Docket No. 20-9045, Fourth Emergency Order Regarding the COVID-19 State of Disaster.