Landlords: Take These Steps Now to Preserve Your Income

March 23, 2020 | Erez Glambosky | Jeremy B. Honig | Real Estate, Zoning & Land Use | Commercial Litigation

Local, state and federal governments have taken unprecedented measures to control the spread of coronavirus (COVID-19), measures that will negatively impact the real estate industry in the state. Last week, New York Governor Andrew Cuomo issued an executive order that will directly impact New York’s real estate industry.

On March 20, 2020, Gov. Cuomo issued a 90-day moratorium on all residential and commercial evictions. Further, some New York lawmakers have proposed a 90-day rent freeze for both residential and commercial tenants who can demonstrate need. Additionally, all state courts, including landlord/tenant courts, are closed until further notice, thereby preventing landlords from commencing summary proceedings against non-paying tenants.

Also on March 20, 2020, Gov. Cuomo issued an executive order directing all non-essential New York workers to stay home. This order came less than a week after he issued another unprecedented order directing:

  1. all bars and restaurants to cease serving dine-in patrons; and
  2. all gyms, finesses centers and movie theaters to close.

It also comes less than one day after he issued an order closing all barbershops, hair salons and tattoo parlors. These directives will undoubtedly cause an unprecedented financial strain on commercial and residential tenants, many of whom may be unable to pay rent and will eventually close. Some commercial tenants have already started invoking “force majeure” clauses in their leases, along with other lease provisions, in an attempt to mitigate losses and avoid certain basic obligations such as rent payments.

Without the threat of a non-payment proceeding or eviction, landlords and managing agents (collectively “landlords”) must be smart and practical in dealing with a tenant that stops paying rent or seeks to terminate its lease during this time. Instead of sitting idly by until the world returns to normal, landlords would be wise to take certain actions immediately in order to:

  • assess each specific tenant’s situation;
  • mitigate risks;
  • maintain the continuity and stability of business operations; and
  • hit the ground running when New York reopens for business.

First, landlords should audit each lease to determine the potential applicability of any force majeure or other similar lease provision, that a tenant may attempt to invoke. It is important for landlords to promptly respond to any tenant notice attempting to invoke any such provision in order to preserve the landlord’s rights under the lease.

Second, landlords should contact each of their tenants to discuss whether an arrangement can be made that would allow the tenant to remain in occupancy while making sure that the landlord eventually receives its rent payments. Ultimately, it is in the landlord’s best interest to keep its tenants, if possible.

Third, landlords should advise their commercial tenants to file business interruption insurance claims with their carriers. It will benefit both landlords and tenants to find out if there is insurance money available to the tenant for loss of business income.

Finally, landlords should continue serving requisite statutory notices on the tenants for failure to pay rent so that the landlords are able to commence non-payment proceedings, if necessary, as soon as the courts reopen.

While COVID-19 will undoubtedly affect every landlord’s business, those landlords that carefully, practically and prudently approach this unprecedented time will achieve the best results under the circumstances.

Rivkin Radler LLP has a team of attorneys ready and available to provide trusted advice and counsel to landlords to help them navigate through these uncharted waters.

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