Attention: Cresa Ottawa COVID-19 Initiative

These are unprecedented times, and we want to help. Cresa Ottawa is offering to support clients and major employers with rent abatement discussion with their landlord. We're not seeking any compensation for this effort, nor are we suggesting that the landlord will simply gift any relief provided. We have several strategies we are employing to achieve this, and depending on your situation and that of your landlord, we expect to be able to arrange a period of lower rent, or no rent whatsoever. The rent relief may represent anywhere from between 1 and 3 months. We hope that our ability to work with your landlord to support you in this effort will contribute to your ability to get through this crisis smoothly. Let us assist with this effort so you can focus on other pressing matters.

 

Our team is fully engaged working out of their home offices and ready to assist. Please call us at 613 688 7200 before May 8th or fill in the form below if you are interested, so we can discuss your situation. 

 We know things will get better in time. 

COVID-19: Consequences for Office Tenants

Cresa Ottawa

Cresa is the world’s most trusted occupier-centric commercial real estate firm. We exclusively represent commercial tenants and solely focus on finding the best office space that drives superior results for your business.

March 30, 2020

In the face of a global crisis, well prepared businesses can help protect their staff and their bottom lines.

This blog was written in partnership with Cripps Pemberton Greenish.

The most frequent question we are being asked by clients at this uncertain time is “how can we protect cash flow whilst fulfilling our lease obligations”. There is no easy answer to this challenge and almost certainly for every one of our clients, there will be circumstances that are particular to them requiring a tailored response. One thing is certain – the strict letter of the law is probably not fit for purpose in these extraordinary times. What matters now is being collegiate, empathetic, realistic, and above all else, communicative. This article highlights the material disconnect between legal obligations contained in leases and the current extreme circumstances we are facing.

We have sought to set out some of the questions that we are frequently asked, and the answers. Further through the article, we set out what we would like to achieve through a process of reasonable and pragmatic concession from landlords.

Q1​: Can I stop paying rent if I am forced to closed the office?

You might think you ought to be entitled to withhold rent in these situations, but most modern leases contain a provision prohibiting tenants from withholding rent. You should check the terms of your lease to be sure or ask your broker. Failure to pay the rent is classed as a breach of the lease and could leave you exposed to enforcement action by the landlord. 

Q2: My lease includes rent suspension provisions – do they help?

Most leases contain a rent suspension clause which (as the name suggests) suspends a tenant’s obligation to pay rent if the premises are damaged and made unfit for occupation or use by an insured risk or some other specified event. Assuming that the lease will not have foreseen the possibility of a forced closure for public health reasons, it is unlikely that this clause would help. However, the triggers for rent suspension will depend on the particular wording so should be checked carefully.

Q3​: Can I terminate the lease?

Your ability to terminate will be limited and depend on what your lease says. Check whether the lease includes any break options. If so, consider the required notice period and whether there are any conditions attached. Full payment of rent is typically one such condition but there can also be additional payments to make. Pay close attention to the timescales and bear in mind that once you have served a break notice, it cannot easily be retracted.

Q4:​ If I can't terminate the lease, will the principle of 'force majeure' apply?

The vast majority of leases do not contain force majeure clauses and will not be implied into a lease, so, unfortunately, this will not help.

If you have entered into a lease agreement with a view to completing the lease at a later date, for example, once the landlord has completed construction works, then there are likely to be force majeure provisions in the agreement. It is generally thought that the spread of an infectious disease, such as COVID-19, would qualify as a force majeure event as it is outside the will and control of both contracting parties. The current situation may well affect compliance with obligations in any lease agreement. We would, therefore, recommend that you seek legal advice for further guidance.

 

Ask us how we can help you re-negotiate your commercial lease during COVID-19. Talk to one of our advisors today - 613 688 7200

Q5:​ Am I able to claim that the lease has been 'frustrated'?

It may be possible for you to rely on the common law principle of frustration. This does not need anything particular to be written into the lease. Frustration arises where an event occurs, after lease completion, which is beyond the parties’ control, thereby rendering it impossible to perform the contractual obligations in the lease, or where the relevant obligation is transformed into a radically different obligation from what was contemplated at the time the lease was entered into.

A frustrating event generally must be unforeseen, unexpected or uncontemplated at the time the parties entered the contract.

As things stand, we think it is generally unlikely that a tenant would be successful in claiming that a lease has been frustrated due to the impact of a closure caused by COVID-19. You might be in a stronger position to argue that the lease has been frustrated if your lease is very short or you just have the tail-end of a longer lease left. There is no established precedent for this, however – you would be creating new law. We will be keeping this under review. Courts may change their approach if there is a prolonged period of closure arising from new legislation.

Q6: Will my business interruption insurance cover me?

You will need to check the wording of your policy and contact your insurer or broker. The initial feedback we have seen from insurers such as AXA is that cover for COVID-19 is not available unless it is specifically named in the terms. That will be unlikely in most cases given that COVID-19 has only been identified recently.

Q7: Anything else to consider?

So we know what the lease says, but if your tenant cannot afford to pay the rent or is going through a period of financial recalibration, why would you not listen to their issues? Well, the answer is you would. From initial discussions we have been having with landlords – large and small – there is a genuine understanding of this difficult situation and a willingness to work with occupiers as if they were customers to try and deliver a solution that works. Whether this means a rent holiday, reduced rental, different payment terms, or perhaps a service charge suspension during extended office absence, grown-up landlords recognize there is an “in it together” aspect to the current situation and with that comes a requirement for equitability.

Wondering how COVID-19 can impact your businesses's real estate? At this time you need an expert on your side who will guide you step by step through your options. Get in touch with one of our brokers today.

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E: ottawa@cresa.com

D: 613.688.7200

130 Slater Street, Suite 1000

Ottawa, ON K1P 6E2

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