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.
Your Lease and Managing Cashflow Through the COVID-19 Crisis
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.
The COVID-19 outbreak has turned the world upside-down. Companies are all experiencing massive hits to their collections and cashflows. Everyone is looking at their expenses and thinking, “is there some way I can get a reduction in my rent while we get through this crisis?” Many of Cresa’s clients have already reached out to us as advisors for guidance.
Your lease governs what happens when a casualty occurs or access to your space is denied. But before now, leases didn’t cover a pandemic. How do the clauses which touch on crisis situations protect you? Lease clauses such as Force Majeure, Casualty, Interruption of Services, Condemnation, Default and Security Deposit are all relevant to today’s crisis. Additionally, will your Business Interruption Insurance cover you in this crisis?
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
1. Clauses related to unforeseen circumstances which cause lack of access:
Force Majeure generally limits the liability of a party in the event of such situations as lockout, labor trouble, civil disorder, inability to obtain labor or materials, failure of power, restrictive governmental laws and regulations, riots, insurrections, war, terrorism, shortages of fuel, equipment, labor or materials, accidents, Acts of God, or any other cause beyond the reasonable control of the party (to name a few) occur. Most Force Majeure clauses are written along these lines:
“No event of Force Majeure shall excuse Tenant’s obligation to timely pay the Security Deposit, the Base Rent, and all Additional Rent and other charges due and payable under this Lease.”
Casualty occurs when a building is damaged (generally physical) resulting in lack of access. Normally there is some provision for abatement of rent after the situation continues for a certain number of days.
Interruption of Services generally sets forth the services a landlord is obligated to provide which can include building security, cleaning services, power, and heating and cooling.
Condemnation normally occurs when a government authority seizes a property, either permanently or temporarily, through the right of eminent domain. We saw examples of this when certain retail space was taken for the construction of the Second Avenue subway stations.
2. Clauses affecting an occupier when they cease paying rent:
The Default Provision addresses what happens if the occupier stops paying their rent, files for bankruptcy, and sometimes even if they vacate the premises.
The Security Deposit clause identifies the amount of security, provides for a reduction of that amount on some occasions, and dictates what the landlord’s rights are to draw down that security in the event the occupier either stops paying rent or defaults under another provision of the lease. Often the landlord can draw down the entire amount of the security deposit if an occupier stops paying rent, even if it is greater than the amount owed.
3. Business Interruption Insurance
While many occupiers carry Business Interruption Insurance, there are often exclusions to what is covered, comparable to the conditions of Force Majeure. We recommend you consult your legal counsel, but barring some level of governmental intervention, we believe it will be difficult to collect on these policies.
The Hard Facts
It is important to understand all the clauses and how they affect you as an occupier in today’s climate.
For example, does a pandemic qualify as Force Majeure? Depending on the specific definition in the lease, it may. But, typically, the Force Majeure clause protects the landlord for failure to provide services or access. Right now, most occupiers can still physically access their space but have chosen not to. Yet in Ottawa 100% of non-essential staff have been instructed to stay home, and national and state emergencies have been declared.
Has a Casualty occurred if an employee of an occupier tests positive for the virus? Most Ottawa occupiers in buildings with positive tests immediately sent their staff home.
Are services interrupted if the building is accessible, the landlord is providing heat, air-conditioning, cleaning, and power, among other services?
What if you decide to stop paying rent entirely? Most default provisions provide that if a tenant defaults, the entire obligation accelerates. Make sure you understand how much security you have posted as the landlord will have the right to draw down the entire amount in most cases.
All these items are open to legal interpretation and we recommend that you consult your attorney in relation to your lease. We all need to understand that we are in uncharted waters. The best approach is to have an open dialogue with your landlord about the current situation and how it is affecting you. It is best to be prepared to discuss your financial situation and show evidence of hardship if you are requesting relief. Sometimes that relief would be in the form of an outright reduction, and sometimes it would take the form of a restructuring with a rent deferral and some type of payback structure. Often other items might be put on the table in exchange for the restructuring like an extension of the term, giving up a termination or renewal right, etc.
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.