Further landlord-tenant considerations during COVID-19
Tuesday, April 07, 2020 @ 1:46 PM | By Laurent Debrun
When did an authority (municipal or governmental) issue an order actually preventing the tenant from operating out of the premises or ordering the landlord to close all access to the building?
For instance, the first wave of orders in early March 2020 asked restaurants to reduce their clientele to 50 per cent of their normal authorized capacity, not to close per se. In such a case, is the tenant prevented from peaceful enjoyment of the leased premises as a result of an event of force majeure? He has the benefit of the full premises, unrestricted by the landlord. What if this tenant chose to close instead of operating at a reduced capacity? Is the tenant obliged to continue offering takeout services (which may still be permitted) in order to show that, even in the face of a force majeure, the tenant tried to mitigate his or her damages.
Is the tenant’s activity an essential service as defined by governmental authorities and the tenant has nonetheless chosen not to stay in operation during the confinement (i.e. a pharmacy, an optometrist, a grocery store etc.)?
Is the tenant making use at a distance of resources located inside the leased premises (hard drives, computer systems, delivery or shipping services, etc.)? In other words, is the tenant receiving part of the benefit of the lease despite the closure?
Is the tenant doing what it can to mitigate damages? In each case, the question will be: is force majeure the direct cause of the closure of a merchant or of a tenant’s impossibility to access office space?
Document the timeline of events which led to the closure of the business or offices. When did the tenant actually close operations? When was the building closed? When did the municipality or government order the closure of malls or a professional order ask its members to stop all procedures (i.e. dentists, opticians etc.).
Is the tenant selling online? Did the tenant’s sales increase as a result of the store closure? Should this be factored in? If a fast food restaurant continues offering takeout service and deliveries, and its sales increase during the confinement period, is force majeure relevant? Should the tenant be entitled to a rent abatement? Is the loss of revenue the sole basis, absent a force majeure clause in the lease, entitling the tenant to seek rent abatement or non-payment of rent or is it that the tenant did not actually obtain full and complete enjoyment of the premises during the crisis?
Despite being closed, is the landlord continuing to render services to the tenant as provided for in the lease (accepting deliveries, cleaning, security, insurance protection etc.)?
Does the lease contain a notice provision in case a party intends to invoke the force majeure clause? If so, that party must exercise this obligation and issue the notice in strict compliance with the lease. As bailiffs and registered mail are suspended or only available for rare emergencies, is there recourse to any reasonable means to communicate the notice and keep evidence of same?
Did the tenant notify the landlord that the tenant was invoking force majeure so as to suspend or defer the payment of rent, including additional rent, in whole or in part, during the force majeure event? While a tenant can attempt to terminate the lease, it may be advisable, after reviewing the applicable termination provisions, to send to the tenant a notice (complying with the notice provisions in the lease) warning the tenant that the tenant will be in default of the lease once it fails to pay rent and or additional rent.
Was the tenant in default under the lease when the force majeure event arose? Is the landlord considering invoking such a default to terminate the lease?
Should the landlord send a default notice to the tenant contesting the invocation of an event of force majeure?
Is the tenant prevented from paying rent due to cash liquidity issues caused by the pandemic and ensuing closure of all retail activities? Increased cost to do business, insolvency or lack of funds is not a case of force majeure. When the crisis is over, a tenant may not be able to claim that he cannot pay rent on time going forward because of losses sustained during the closure of all retail activities.
If the lease contains a continuing operations clause, is the tenant truly prevented from operating? Consider, for instance, a bank in a closed mall. If the bank has an ATM with street access, does the closure of the mall allow the tenant to interrupt service via the ATM? Can the landlord ask the bank in this example to suspend service or, on the contrary, to continue ensuring service? To what extent could the bank, in this example, claim that it was prevented from making use of the premises if its clients can do most operations through the ATM or online?
Both during the shutdown and when it is officially lifted there will be other considerations. Can tenants gain access to their premises to retrieve files and equipment in the event access to the building is restricted? Can a landlord examine a tenant’s customers, clients, suppliers and employees for signs of illness? Could the latter persons claim that their privacy rights are affected by a landlord’s response to COVID-19 and the control of a building?
Is a landlord permitted to enter a tenant’s premises without permission during the shutdown to disinfect it or does this obligation fall upon the tenant? What obligations does a landlord have to keep a building clean and safe in the midst of a pandemic?
This is part two of a three-part series. Part one: Landlord-tenant checklist for Quebec during COVID-19.
Laurent Debrun specializes in civil and commercial litigation, domestic and international arbitration, estate law, franchise law, aviation law, real estate law, intellectual property law and e-commerce law with Spiegel Sohmer. He has a vast experience in the optical industry and the representation of manufacturers in relation with their liability for consumer, industrial products and equipment.
Photo credit / Feodora Chiosea ISTOCKPHOTO.COM
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