William Wright Report Q1 2020: What Does the New Normal Look Like in 2020?

William Wright Report Q1 2020: What Does the New Normal Look Like in 2020?

May 1, 2020

As the world is learning as one; how do we deal with the impact of COVID-19 and what does the future look like as we adjust to our new normal? Is social distancing here to stay? Does society not want to go back to operating and living within close quarters? Does the travel industry see a quick bounce back or is the cruise line business changed forever? No one has the play book on how all this plays out nor what the next 2 months, 6 months and even 1 year looks like, but what we do know is we are all experiencing the effects of COVID-19 together. No country or industry is immune to the economic impact this virus has had around the world and what the new normal looks like we will again experience as one.

What options to Landlords and Tenants have during COVID-19 if rents are an issue?

Considerations for Tenants

Before taking any action, tenants are advised to review their lease agreement and seek legal advice on the implications of their potential actions, what would constitute a default of the lease, and legal options available to their landlord.

British Columbia has recently issued a ban on eviction of tenants which has created major misunderstanding amongst many business owners. It is important to understand that the ban, at this point of time, only applies to Residential Tenancies and not to Commercial Tenancies which are governed by their lease agreements and common law.

Some items that tenants need to review are as follows:

  • Is the business considered to be a service that has been ordered to close or may it stay open with certain adjustments?
  • What action or condition triggers a default by the tenant under their lease? Tenants must remember that in many lease agreements, a default, even if resolved, may take away future renewal options and 1st rights of refusals.
  • Under what conditions can a landlord evict them due to closure of business?
  • Would the landlord benefit from the property becoming vacant? Does the property have immediate development potential that the property owner would like to take advantage of?
  • How much is the security deposit that the landlord holds and under what conditions can a landlord use it?
  • What potential coverages are available to the tenant under their commercial insurance policy?
  • What other options become available to the landlord if they close their business?
  • Is there a “Force Majeure” clause in their lease and if so how is it defined? Does it impact the party’s performance requirements under the lease due to the current circumstances?
  • What are the relief programs offered by the Federal and Provincial governments for small businesses? Increasingly many options are becoming available in the form of interest free and low interest loans, payroll subsidies, tax deferments, and more…

Options Available to Landlords and Tenants

  • Temporary Rent Reduction/Basic Rent-Free Periods
  • Deferral of Rent:
  • Converting Basic Rent Leases to Percentage Rent Leases
  • Rent Abatement
  • Landlord Loans
  • Use of Security Deposit
  • Subleasing

After reviewing the above, a Tenant should assess their financial position and understand what best case and worst-case concessions they would require from landlord. As with landlords, tenants also need to understand that a win-win solution is required.

Tenants should contact their landlord and explain how their businesses are being affected and be prepared to provide financial data to support their claim.

How does Force Majeure impact future commercial lease agreements?

Force Majeure: unforeseeable circumstances that prevent someone from fulfilling a contract.

Does your commercial lease have this section in it, if it doesn’t; it soon could in the future. This is a phrase that is found in most commercial leases but based on the impact of COVID-19 and the inability of tenants being able to pay their rents, this section will be including and defined in most if not all commercial leases post COVID-19. For legal advice on that could impact your lease, please contact your legal council and provide them with a copy of your lease for their professional legal definition and how it applies to your lease.

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This communication is not intended to cause or induce breach of an existing agency agreement. E&OE: All information contained herein is from sources deemed reliable, and have no reason to doubt its accuracy; however, no guarantee or responsibility is assumed thereof, and it shall not form any part of future contracts. Properties are submitted subject to errors and omissions and all information should be carefully verified. All measurements quoted herein are approximate.