Commercial tenants and landlords negotiating letters of intent and leases during this time should pay particular attention to the following issues, some of which might surprise you:
- Non-Disturbance Provisions
Many tenants are now insisting on non-disturbance provisions (i.e., NDAs) in their lease agreements or Subordination, Non-Disturbance, and Attornment Agreements (“SNDAs”). By entering into an NDA, or SNDA, the Landlord’s lender is agreeing that, upon acquiring title to the leased property through a foreclosure sale, the lender, or any other purchaser at the sale, will “not disturb” the tenancy of the tenant, so long as the tenant is not in default. Without such an agreement, a tenant may lose its right to continued occupancy at a building, mall, or office complex. Basically, by obtaining one of these agreements, a tenant is given the peace of mind of knowing that if its landlord loses the leased property through foreclosure, the tenant can stick around and the tenancy will not be interrupted or disturbed.
- Cleaning Provisions Are Now Being Negotiated
Tenants are now requesting, and obtaining, representations and warranties from landlords about the levels of cleaning being conducted in certain offices and retail space. Many tenants are now negotiating an increase in “normal” and extra cleaning and sanitizing. Likewise, if tenants are doing the cleaning, landlords want the ability to demand extra cleaning and sanitizing. In prior years, cleaning provisions were oftentimes never addressed or considered.
- Compliance with Laws
Once considered a boilerplate “throwaway” provision, tenants and landlords are now defining what constitutes a law versus a “recommendation.” For example, landlords and tenants are now being explicit that “health directives” from City, State, and National health authorities must be followed by both landlords and tenants; whereas, “recommendations” should be followed but are not affirmative obligations that could result in an event of default for non-compliance. Landlords and tenants are now being much more explicit in defining which laws are applicable to the parties and how compliance is satisfied. These provisions were oftentimes placed at the end of leases as “stock” boilerplate language.
- Force Majeure
Much has been written lately about force majeure provisions in leases. Tenants question whether such provisions excuse nonpayment of rent in light of nearly all commercial leases indicating that the payment of rent is not subject to force majeure. Landlords and tenants negotiating leases should be explicit that shutdowns and/or pandemics are an event of force majeure and need to be explicit about how force majeure affects various other obligations under the lease. In other words, while most landlords and tenants are focusing on rent obligations, what about other leasing issues? For instance, can a shutdown or pandemic delay a landlord’s payment of an improvement allowance? This issue has surfaced quite a bit in the last 4-5 months. Tenants and landlords should be explicit on the applicability of force majeure.
If you are interested in learning more on how these typical “boilerplate” provisions have now become critical to lease discussions, please feel free to contact me to discuss. Call 602-533-2840, email email@example.com or complete the following link: http://bit.ly/MandGNCIS.
Very Truly Yours,
Patrick R. MacQueen, Esq