Retail tenant not paying rent - Covid Force Majeur

[Shay Reddy]

I have some retail tenants who are not paying rent due to force majeure & covid19 Realistically their sales dropped and the government is not allowing them to operate their  math tutoring place.As the government is not allowing them to run classes over the summer so they are basically dead in the water. I know I can sue them and force them to pay up as they're also personal guarantor on the lease. But realistically what are my options to cut my losses. Hopefully make a win-win out of a bad situation.

[Brett Peters]

@Shay Reddy This a very good topic but a very stressful situation. I and the rest of the people in retail feel your pain. To start, I am going to assume your tenants have the force majeure clause already in their leases. If that is the case, the exact wording of that clause is key! Even though the clause has been around for some time, Covid-19 is very new and it has to be proven in a court of law that the clause actually applies to the pandemic. Not all the clauses are identical and in many states tenants have been losing their cases because either the language was too broad or too narrow. It is also pertinent to remember this clause does not excuse them from paying rent but rather delays their obligation to pay. My question is are they trying to leave or stay? If they are trying to leave, you will have to take them to court for the rent due and the judge will have to rule on the clauses validity. If they are trying to stay, then you have many more options. The bulk of which is in restructuring the leases. There is an infinite number of ways to do this, but I would recommend blending and extending. In other words, give them amnesty from payment while they go dark and tack those missed months onto the back end of their lease. In this way you would in theory maintain the integrity of your NOI. So if you are in a case where you have to sell or refinance, your property value won't be impaired. I stress the fact that only a judge can decide if force majeure applies, not the tenant! As a disclaimer this is not legal advice, and you should consult an attorney. I hope this helps.