The COVID-19 pandemic has wreaked havoc on industries across the globe. Emergency and shelter-in-place orders designed to slow or stop its spread have disrupted peoples' lives and livelihoods. "Nonessential" businesses across the country have been forced to close. These restrictions have impacted every sector of the economy. The commercial leasing space is no exception. Despite almost nationwide moratoria on evictions and suspensions of police eviction enforcement activities, on April 1 approximately $81 billion in rent payments came due. Landlords can expect a surge in delinquent and defaulting tenants this month and in the months ahead. Indeed, recent national reporting indicates that Dick's Sporting Goods Inc., Equinox Holdings Inc., Staples Inc. and other large companies have failed to make all or part of their April rent payments.

CARES Act

CARES provides various relief options to help small businesses navigate the next few months while avoiding layoffs. The Paycheck Protection Program (PPP) sets aside $350 billion in government-backed funds available for emergency loans that can be forgiven to the extent the proceeds are used to maintain payroll costs, pay mortgage interest, rent, utilities, and additional wages on tipped employees. CARES also expands funds available for the SBA's Economic Injury Disaster Loans, provides tax benefits like an employee retention tax credit, offers delayed payroll tax payments, relaxes limitations on net operating losses and expands carry-back treatment, and accelerates Alternative Minimum Tax credits. It is important to note that if loan proceeds are used for anything other than a covered cost, those amounts will not be forgiven. The CARES application process for SBA-approved lenders opened for small business and sole proprietors on April 3, 2020 and opened on April 10, 2020 for those who are self-employed and independent contractors. Some qualifying tenants have expressed their intent to apply and use at least a portion of the proceeds to meet their rent obligations to their landlord. If you or your business could benefit from CARES, you should contact a qualified legal professional to assist you.

Lease Provisions to Know

• Force Majeure

Whether your lease contains a "force majeure clause" should be a first consideration. Force majeure clauses excuse a party's nonperformance when unforeseen circumstances outside the party's control prevent it from meeting is obligations. Depending on the specific language of your lease, events like pandemics, epidemics, contagious diseases, government acts and orders, and civil emergencies or unrest may qualify. Difficult market conditions, financial difficulty, or events that could or should have been anticipated usually do not.

The trend has been for commercial leases to omit force majeure clauses altogether. And even for those that do contain them, the obligation to pay rent is typically excluded from relief under a force majeure clause.

If your lease contains a force majeure clause, it is important to comply with any and all notice requirements for claiming a force majeure event as an excuse for failure to perform any lease obligation.

• Permitted Use

Premises typically must be used only for a specific purpose. In these trying times, tenants operating "essential retail and commercial businesses" as well as their landlords are likely to find themselves in a better position than those leasing premises dedicated for non-essential uses. Even essential businesses will see a sharp decline in sales from limited operations. If commercially feasible and permissible under the lease, obtaining landlord consent to change the permitted use may allow a tenant who otherwise would have to close continue operations.

• Continuous Use or Operation

It is common that commercial leases require the tenant to timely open and continuously operate during normal business hours. Failure to do so can result in penalties or liquidated damages to the landlord. However, many leases acknowledge that a tenant's failure to open or operate due to a force majeure event like a pandemic or ordered governmental closures like we are facing now, penalties or liquidated damages will not be assessed. Tenants, especially non-essential retail tenants who chose or are forced to close in response to a governmental order or out of concern for customer or employee safety, should timely notify their landlords if they chose or are forced to close.

• Repairs, Damage, Casualty and Eminent Domain (Takings)

Landlords are typically responsible for structural repairs and repairs to facilities servicing the premises. They are also normally responsible for restoring the premises if it is destroyed by fire or another casualty event. Often leases call for rent abatement during the period tenant's business was forced to close. And, where governmental action limits use of the property to such a degree that it deprives the owner or the tenant of its reasonable use or value of the property, the lease and other applicable law may consider that a governmental "taking" or exercise of its right of eminent domain. Depending on the facts of your case, this may raise due process concerns and entitle the landlord to compensation. Additionally, the lease may provide for the tenant to receive rent abatement or some other relief.

Whether the damage, casualty or takings provisions of your lease will apply government acts related to the COVID-19 crisis will depend on the specific language of your lease. Because every lease is different, it is important to familiarize yourself with its provisions and discuss any questions you may have with an attorney.

• Quiet Enjoyment

Tenants have the right to quiet enjoyment of the premises during the term of the lease. This means that the tenant's occupation and use of the premises should not be disturbed or interrupted, so long as the tenant is otherwise in compliance with its obligations. In normal circumstances, an action by the landlord that interferes with this right would be considered a breach. The COVID-19 crises may change that analysis under certain circumstances where the landlord must take action to comply or ensure the tenant's compliance with a governmental order or in the interest of public health. Landlords would be well-advised to consult with an attorney before taking any action that might be construed as a breach of the tenant's right to quiet enjoyment.

• Surrender Requirements

With nonessential businesses forced to close across the country, and with many buildings having enacted a freeze on new tenants, it may be difficult for tenants whose leases are expiring to find moving companies to remove their personal property. You should review your lease to determine whether a tenant's failure to move out completely would trigger liability for holdover rent or other damages. For landlords, discretion once again may prove to be the better part of valor in addressing these situations.

Common Law Defenses

Even if a given lease does not contain a force majeure clause, landlords can expect tenants to raise various common law defenses as an excuse for non-performance, including a failure to pay rent. The most common of these are impossibility, commercial impracticability, and frustration of purpose. While these defenses are fact-specific, they require the tenant prove that performing is physically or legally impossible, that performance has become so expensive as to be financially or commercially impractical, or that an event that both parties were counting on not to occur has in fact occurred. Historically, these theories rarely excuse a straightforward failure to pay rent. Whether that trend will hold in this post-COVID-19 legal environment will depend on the specific facts of your case.

Business Interruption Insurance

Landlords and tenants should immediately review their commercial insurance policies for business interruption coverage. Although most policies require physical damage to the property, some may cover interruptions caused by epidemics, pandemics, communicable diseases, infections, governmental acts or orders, and social unrest or commotion. If you believe you have a claim for business interruption or any other insured loss, it is important to comply with all notice requirements under the policy, including the time period in which the claim must be made, what information your claim should contain, and how and where your claim should be submitted.

Considerations for Future Leases

Landlords may want to consider omitting force majeure clauses altogether. This of course may be especially unpalatable to commercial tenants in light of recent circumstances. But landlords and tenants both will want to be sure any force majeure clause that is included in their lease is drafted carefully and with an eye toward clearly delineating what constitutes a force majeure event and what each party's rights are in the event a force majeure event occurs.

Landlords also should consider requiring a larger security deposit at the inception of new leases or renewals of existing leases. This may be even more unpalatable to many tenants. And for others, it might not be feasible. But in either case, for landlords obtaining more cash up front provides valuable added security against a future default, whatever the underlying cause.

Shane P. Martin is an attorney with Nelson Mullins in Miami. He advises and represents individual and business clients, including Fortune 500 companies, in complex commercial litigation matters. He can be reached at [email protected].