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COVID-19 Commercial Leases

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1. What should I do if I can’t pay the rent for my small business?

The first thing you should do is to read your lease. Look specifically at the Default and Remedies sections. These sections give the property owner certain rights if you do not pay rent. In some shorter leases, you might find that the default and remedies sections are included in the section that describes how you will pay rent, or in a termination section.

The frequently asked questions below address resources that might help, in addition to tips for negotiating with your property owner.

2. Can the federal CARES Act help me pay my rent?

The recently enacted federal Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides for two main types of assistance to help small businesses meet their needs during the pandemic, the Paycheck Protection Program (“PPP”) and the Economic Injury Disaster Loans and Loan Advance (“EIDLs”).

The PPP provides federally guaranteed loans to most businesses and nonprofits with fewer than 500 employees that were in operation on February 15, 2020. Businesses may use the PPP proceeds to pay rent and utilities, as well as payroll. Loan proceeds used to pay payroll, rent and utility expenses during the 8 week covered period may be forgiven if spent on allowed expenses. For any amounts not forgiven, the maximum term is 2 years and the maximum interest rate is 1 percent. More information about the PPP on the SBA website.

EIDLs provide a quick infusion of cash to help similar businesses and nonprofits cover rent and utilities, as well as payroll and other expenses. The SBA will make the loan advance of up to $10,000 available within three days of a successful application. This loan advance will not have to be repaid. EIDLs are for amounts up to $2 million. Interest is 3.75% and the loan period is up to 30 years. Apply through the SBA website

These federal loans are not available for cannabis businesses, but it is available for other businesses, including alcohol-related businesses.

You can find local assistance.

Senator Wyden’s Office has more information about these programs at its COVID-19 Small Business Relief Q&A.

3. Does Oregon’s “no evictions” order apply to commercial leases?

Yes. Governor Brown issued Executive Order No. 20-13 on Wednesday April 1, 2020, placing a temporary moratorium on non-residential evictions for nonpayment in light of the public health emergency caused by the spread of coronavirus in Oregon. The order prohibits property owners for terminating leases, filing or serving notice to the commercial tenant, or taking any judicial actions for eviction during the temporary moratorium for non-payment of rent, late charges, utility charges, or any other service charge or fee. You can see the order.

HOWEVER, in order to take advantage of this moratorium, the tenant has to

• give the landlord 30-days’ notice of when rent is due that the nonpayment is caused by the Covid-19 pandemic, and
• include documentation showing proof of the loss of income due to the governmental restrictions imposed to prevent the spread of Covid-19.

This also does not relieve you of having to pay those fees forever, and you have to pay the amount that you are able to pay.

So, notify your landlord right away, make sure that you specifically mention that this is caused by Covid-19, and have documentation available to show that you’ve lost income (e.g., cancellation notices, the Governor’s previous executive orders, etc.).

If you do not meet these requirements, the property owner can still evict you once the Oregon courts reopen, as well as resort to other remedies in your lease, unless you renegotiate.

While Oregon courts have restricted operations, courts will allow property owners to file eviction complaints, known as Forcible Entry and Detainer, or FED complaints. Absent extenuating circumstances, all first court appearances by the property owner and tenant will occur after June 1, 2020. The Chief Justice’s Order regarding COVID-19 restrictions on court operations.

Even though judicial FED (eviction) proceedings are on hold, keep in mind that most commercial property owners can exercise “self-help,” or lock out a tenant if a tenant falls behind on rent and defaults under the lease.

4. Can I negotiate a change to my lease?

You can approach the property owner to negotiate a change to your lease, but both you and the property owner must agree to the new terms to make the change. If the closures and restrictions required by Oregon to enforce social distancing are affecting your ability to pay your lease, reach out (or have your attorney reach out) to the property owner right away, before you miss a payment. It may be more difficult to negotiate changes after you miss a payment and are already in default; plus, it is the respectful thing to do. Most property owners will appreciate that you’re being proactive. If you have a difficult relationship with the property owner, though, you may want to have your attorney review your lease first and then have your attorney reach out to the property owner’s attorney.

5. Why would the property owner be willing to negotiate changes to my lease?

Understanding the property owner’s perspective and interests will help you negotiate. If the property owner has a mortgage, the loan covenants may require the property owner to have the bank approve any lease modification.

Many small businesses are in a similar situation due to the coronavirus crisis and property owners are likely worried that they will not receive any rent. In addition, because many small businesses have to temporarily close and people are isolating themselves, it will likely be very difficult for property owners to find new tenants. Given a choice between an empty space and working with a good tenant who has a good business, the property owner may be willing to agree to a short rent-free or rent-reduced period until a successful tenant can pay full rent again. Property owners may also want to avoid the legal costs of terminating a lease and pursuing a personal guarantee in these times of economic uncertainty. As a result, property owners may be open to negotiation, even if they would only receive a partial payment now. They may be willing to take a risk that you will be able to make up the payments once you reopen.

6. How do I approach negotiating with the property owner?

There are many approaches to starting the conversation, including:

1) Explain to the property owner the hardships that your business has suffered due to the pandemic; for example, whether you’ve shut down entirely or reduce service. One of the property owner’s first questions may be if you have applied for assistance under the CARES Act. Be ready to tell the property owner if you have, or why you have not;

2) Acknowledge that this is an unprecedented situation and that you would like to collaborate with the property owner to find a solution;

3) Propose terms that you would be willing to accept;

4) Ask the property owner for confirmation that the property owner won’t issue any default notices (for nonpayment of rent or otherwise) during the period of the pandemic restrictions.

If you are thinking of telling the property owner that you won’t pay any rent, you may want to talk with an attorney first. Do not send a letter like the Cheesecake Factory, telling all of its property owners, including malls, that it would not pay rent in April. Cheesecake Factory is now likely facing lawsuits. Similarly, the property owner may take this as advance notice that you plan to breach the lease. Some leases provide that a threat to breach the lease puts the tenant in default. If your lease has this type of provision, the property owner may decide that your notice that you won’t pay any rent puts you in default. The property owner may then be able to exercise its remedies under the lease.

If you specifically cannot pay all or part of your rent because of Covid-19, instead call your landlord and follow the directions above about Governor Brown’s “no evictions” order for non-residential leases. In addition, you may send a letter with the same information, following the notice requirements in your lease. However, don’t just say you won’t pay rent; provide the required documentation and negotiate to make partial payments if you are able.

(Source: eater.com/2020/3/24/21192792/restaurants-cant-pay-rent-property owners-lease-covid-19-coronavirus)

7. What are some terms that I can consider offering the property owner?

1. Reducing all or part of the rent for a period of time or permanently. Given the uncertainty, allow for extensions;
2. Paying only utilities and/or common area maintenance charges (common expenses, property taxes, and insurance) and no base rent for a period of time, with the possibility of extensions;
3. Deferring all or part of the rent for a period of time and paying the deferred rent over the remainder of the lease. Given the uncertainty, allow for extensions of both the deferral and repayment. If the lease expires soon, you could offer extending the lease to give you more time to pay the deferred rent. Note that this would increase your future rent payments;
4. Applying the security deposit to rent, and replenishing the security deposit over time after Governor Brown has lifted the pandemic restrictions.
5. Deferring payment of rent in exchange for a guaranty of payment in the future. (Source: seyfarth.com/news-insights/10-considerations-for-property owners-during-the-coronavirus-crisis.html)

8. If I am able to reach an agreement with the property owner, can we just agree over the phone?

No. Put the terms of your agreement in writing as soon as possible. In Oregon, commercial leases are not enforceable unless their value is less than $1,000 for the whole agreement, or they are in writing. (ORS 72A.2010). In addition, both you and the property owner must sign the agreement. Having your terms in writing also helps avoid misunderstandings later.

9. I can’t pay rent and can’t reach the property owner. Should I send them a letter explaining? Is that enough to forestall an eviction in the future?

If you are unable to reach the property owner in the way you normally reach them, keep trying to reach out to them by phone, email, or mail. Follow the notice provisions in your lease to send them the specific information and documentation required by Governor Brown’s Executive Order number 20-13, as described above in the “no evictions” question.

10. What if I already missed a rent payment and the property owner sent me a default notice?

You should take this seriously and act quickly. Take a look at the default section of your lease. Many leases specify that you have a certain number of days to cure a default, such as failure to pay your rent, before the property owner can evict you. Keep in mind that even though Oregon courts might not hear eviction complaints until June, most commercial property owners can exercise “self-help,” or lock out a tenant if a tenant falls behind on rent.

You can first reach out to the property owner and try to work out an arrangement. However, if the property owner is unwilling to work out an arrangement, contact an attorney to see if they can help with negotiations or if your lease or state law has other available remedies.

If you were not planning to stay in the space anyway, you should still take a look at the default and remedies sections of your lease. Even if you did not plan to stay, you are likely still on the hook for rent payments and possibly other payments, as well.

11. Am I still responsible for paying rent if I have to close my business?

It depends. Your business is likely on the hook for paying rent, unless the government takes further action like issuing grants, or possibly if you have a force majeure clause (see below) that may excuse you from paying rent for the duration of the kind of event described in the clause. If your lease includes a Personal Guarantee or Guaranty, though, you are likely personally on the hook for the rent no matter what happens to your business. The personal guarantee is a statement that you are “personally guaranteeing” or “agreeing to guarantee to perform” all of the requirements under the lease. Another key phrase to look for is “agree to guaranty”.

12. Will a “Force Majeure” or “Impossibility” clause get me out of the lease?

A “Force Majeure” clause excuses duties under a contract because of “acts of god.” These clauses may relieve parties from contract obligations if they are unable to perform due to circumstances outside of the parties’ control, such as extreme weather events, natural disasters, unexpected operations of law or government actions, or strikes. These clauses are often found in a Termination or Miscellaneous sections of a lease, and are sometimes called Impossibility clauses. Sometimes Force Majeure clauses are vague and sometimes they are extremely specific, even listing epidemics or pandemics among the things that could excuse your duties.

BEWARE, however. It is quite common for a Force Majeure clause in a lease to exclude payment of rent from one of the things that could be excused. The clause is also likely to only apply for the period of the emergency -- meaning that even if you have a clause that would allow you off the hook for rent, it would only be until the emergency is over; then you would owe the back rent. If you have a Force Majeure or Impossibility clause, make sure you read it carefully. If you want to see if yours would allow you to walk away from the lease, you should definitely consult an attorney first. Keep in mind, too, that an emergency that excuses the tenant’s obligation to pay rent may also excuse the property owner from performing its obligations under the lease. These clauses are often written to be available equally to both parties to the lease.

Lastly, pay attention to any notice requirements that may be required to invoke the Force Majeure clause, if it applies. If you need to send such notice, we recommend consulting an attorney first.

13. What if my lease states that I have to be open during certain days and hours?

This is where a Force Majeure clause would come in handy. A very common feature of Force Majeure clauses is that they usually excuse a party from performing due to an unexpected operation of law or government action. Governor Brown’s Executive Order No. 20-12, issued on March 23, 2020, mandated the closure of certain businesses and required working from home or very limited service of others (such as restaurants).

Certainly no one could have anticipated the global pandemic caused by the coronavirus. Since Governor Brown’s Executive Order made certain business operations impossible, it is likely that the Force Majeure clause in your lease excuses you from this particular requirement. Even if you do not have a Force Majeure clause in your lease, you are still likely excused from performing this lease obligation if remaining open would violate the Governor’s Order. A court would not require you to violate the pandemic restrictions in order to comply with lease terms. Clarify this term during your negotiations with the property owner to make sure you both are on the same page.

14. What if the property owner wants to cancel my lease because the location is good and they think they can get more money from another tenant?

A property owner might also seek to take advantage of a Force Majeure clause by cancelling the lease during the crisis caused by the pandemic. If this happens, consider consulting an attorney to help you understand the lease, negotiate or seek other legal remedies.

15. What if I have to declare bankruptcy?

If you feel you must file for bankruptcy, talk to a bankruptcy attorney before contacting the property owner.

16. If I am a month-to-month tenant, how does this impact my lease?

It depends on whether you’d like to keep your space, or if you’d like to close it for the time being. In either case, review your lease for the payment terms, what happens if you default or breach, what kind of notice you have to provide if you want to leave or stay (and what kind of notice the property owner has to provide) and the remedies if you default.

If you would like to stay in your commercial space, reach out to the property owner as suggested above. As we’ve mentioned before, the property owner may be happy to keep tenants in their spaces, given the current uncertainty of attracting and signing new tenants.

If you would like to leave, your lease may require you to provide at least 30-days’ notice of termination. You could still try to negotiate deferral or abatement of your rent until you’re able to leave under the terms of the lease.

17. I do not know if I have a lease (or can't find a copy of my lease). What should my next steps be?

It is very likely that you have a lease. In Oregon, commercial leases are not enforceable unless their value is less than $1,000 for the whole agreement, or they are in writing. (ORS 72A.2010).

If you cannot find your lease, think back to how you and the property owner agreed that you would rent your space. Did you go back and forth through email? If so, search your emails. If you used a software program to sign, like Docusign, you may be able to follow the link to your signed lease in that program, or you may have a copy in your email or on your computer. If you used the services of a broker or an attorney, reach out to them for a copy. If you are in a complex with other tenants who likely have the same or similar lease, you could ask to see theirs. If you have a good relationship with the property owner or property manager, you may simply contact them for a copy. If you are not on good terms with the property owner and have no other way to obtain a copy, make sure the lease provided is consistent with your recollection.

If you had a lease and the terms have expired, you are now considered a “hold-over,” or month-to-month tenant. This means that you would owe the property owner at least 30-days’ notice of termination. ORS 91.070. You can negotiate the lease and payment terms if you want to stay in your space. Do not forget to get it in writing.

If you do not have a written lease and only an oral agreement, then you may not have an enforceable lease. Do not just walk away, though! If you leave without paying, the property owner may still have some rights because you were in possession of and benefiting from the property. Check with an attorney to understand your rights and obligations. If you want to stay, negotiate a written lease with the property owner as soon as possible.

18. Where can I find more resources?

• City of Beaverton
• Prosper Portland resource
• Greater Portland resources (which references other City specific, state and federal resources)
• Small Business Development Center resources: COVID-19 crisis page with everything from a Business Adversity Response Plan to Oregon Dept. of Revenue Tax Relief Options.
• Senator Wyden’s Office has a resource page
• The U.S. Senate Committee on Small Business and Entrepreneurship has also released a fact sheet with resources and explanations
• More information about the Federal CARES Act and Economic Injury Disaster Loans and the Paycheck Protection Program