State and federal laws are changing every day with respect to the novel coronavirus called COVID-19. As the laws related to your business change, we will continually keep you updated. Here are some guidelines to follow as we await specific legislation related to owners, tenants, property managers, and occupants of real estate and prospective sellers and purchasers of real estate.

General Guidelines

If an individual residential tenant or employee of a commercial tenant is diagnosed with COVID-19, the identity of the patient should not be disclosed. It is acceptable to share that a positive diagnosis has occurred within the building and encourage other tenants to take appropriate precautions. If you are a property manager or landlord, take all possible steps to ensure that common areas in your buildings, such as lobbies, security areas, and elevators, are regularly cleaned with solutions that will kill the COVID-19 virus. Consider temporarily closing discretionary social gathering areas, such as exercise rooms, pools, and party rooms, where the spread of COVID-19 is more likely. Follow guidelines from the CDC. The CDC’s website has excellent, up-to-date information about precautionary measures to take to help reduce the spread of COVID-19.

Be aware that even if a contract appears clear, a court may not enforce a contractual obligation that was impossible to fulfill due to governmental ordered closures or that would risk the health and safety of tenants, their employees, or customers. What a court may have done before COVID-19 may not be what a court will do in the current climate of COVID-19.

Force Majeure

Contracts, such as purchase agreements and leases, may have a force majeure provision that extends the time of performance based on uncertain, unforeseeable, or uncontrollable events that are outside the control of the party tasked with the obligation. For example, a force majeure provision may apply if there is a construction delay caused by an inability to get permits because the courthouse is closed. However, a force majeure provision may not excuse a payment obligation such as the payment of rent or a mortgage payment. The language of the force majeure provision will determine whether it can be invoked given the circumstances in play at the time. Please note that not all force majeure provisions are the same. Also, there may be a requirement in the contract for you to put the other party on notice that you are invoking the force majeure provision, if it is exercisable.

Purchasers and Sellers

If you are a prospective purchaser or seller of real estate, review your purchase agreement with respect to the expiration of due diligence, financing periods, and the closing date. If your ability to complete due diligence is impacted by an inability to access the property or obtain financing, consider negotiating an extension of affected time periods or reviewing your purchase agreement for a force majeure provision that may allow for an extension of time given an event such as COVID-19. If so, place the other party on notice that you intend to utilize that provision. Also, there are or may be in the coming weeks, closures of courthouses and recording offices that may make closing during your current time frame in the purchase agreement impossible.

1031 Transactions

As of this date, although the payment deadlines for tax returns have been moved, the deadlines for 1031 exchange transactions have not. Further, the return deadlines have not changed.

Commercial Landlords and Tenants

If you are a landlord or tenant, review your leases to determine which party, if any, has ultimate responsibility for issues associated with COVID-19. For example:

• Determine whether or not any co-tenancy provisions have been breached. Co-tenancy provisions are most often found in retail leases and may allow an affected tenant to reduce rent or take other protective measures if an anchor tenant or other key tenant (named in the lease) closes in the shopping center.
• Determine whether or not the tenant is required to continuously operate and if a temporary closure has caused a breach of the provision or whether notice to the other party is required.
• Contact your insurance agent to determine if a claim can be made under a policy of business or rental interruption insurance related to any government mandated closure or an interruption in receiving rental income.
• Determine if there are significant tenant improvements currently being made to a property that could be in threat of being delayed and the implications of such a delay under the lease.
• If you operate a restaurant where full service has been changed to carry-out or drive-thru only, you can make access to restrooms employees only provided that this prohibition is consistently applied without exception.

Residential Housing Providers and Residents

In addition to the recommendations offered in connection with commercial and residential property managers, residential housing providers should consider offering materials, in multiple languages, to educate employees, visitors, vendors, delivery personnel, and staff about proper hand hygiene and cough etiquette. As a matter of course, housing providers should install hand sanitizers in high-traffic areas of the building and discuss human resource considerations such as screening employees that have traveled to areas where the COVID-19 virus has been reported and implementing protocols for dealing with a situation where an employee may be infected by the virus.

On March 18, 2020, the Equal Employment Opportunity Commission (“EEOC”) released guidance indicating that, because the CDC and state/local health authorities have acknowledged the community spread of COVID-19 and issued attendant precautions, employers may now measure employee body temperatures for their workforce.

On March 18, 2020, President Trump signed the Families First Coronavirus Response Act into law. This new law, which becomes effective on April 2, 2020, provides for, among other things, emergency Family and Medical Leave Act (FMLA) leave and paid sick leave in response to the COVID-19 outbreak.

Commercial Borrowers

Review your loan documents if your commercial property has financing. Being able to service debt and any required reserve funding on a real estate loan is typically the first issue our commercial property owners consider. That said, it is also important for you to review and consider the implications of the following common provisions contained in commercial real estate loan documents:

• Grace Periods. Determine if the loan documents include any grace period for payment of debt and funding of any required reserves. This will help you understand what relief you have for making payments, including if your debt service payments are incumbent upon receipt of rents from your tenants.
• Financial Covenants. Review any financial covenants contained in the loan documents, including the testing timing and financial definitions associated with those covenants. Will the borrower’s ability to meet those covenants be adversely impacted as a result of the business interruption presented by COVID-19?
• Leasing Covenants. Commercial real estate loan documents for tenanted properties often include covenants concerning the property’s leasing activities, such as:
  • The loan may require that certain key or anchor tenants remain in good standing under their leases and/or continually operate so a borrower should determine whether the covenant may be breached as a result of circumstances surrounding COVID-19.
  • The loan may require that certain tenant improvements get completed by a certain time that may no longer occur due to delays caused the COVID-19 outbreak.
  • Loan agreements for tenanted properties often contain restrictions on amending or modifying leases without the lender’s written consent or prior notice. Therefore, if a tenant asks for rent relief or some other modification to the lease, lender’s consent may be required.

• Cash Management Triggers. Some real estate loans, especially CMBS and life insurance loans, contain cash management provisions. If your loan documents include cash management provisions that are triggered upon adverse consequences to the property, review those triggers and be prepared. Not meeting financial covenants and leasing covenants, as discussed above, are typical triggers.
• Lender Inspection Rights. Some loan documents include periodic lender inspection rights. Just as above with due diligence, be aware of these inspection rights and speak with the lender to make sure appropriate steps are taken to protect the property and tenants. Suggest video conferencing or delay of inspection until a safer date. These are unprecedented times and, in most cases, a lender should be amenable for the safety of all involved, including themselves.
• Representations and Warranties. Virtually all commercial real estate loan documents include representations and warranties given by borrowers concerning the borrower and the property. While these representations and warranties are given at the time of the loan closing, most loan documents are written so that the borrower automatically recertifies the representations and warranties as “true and correct” at the time of a subsequent advance, delivery of financial statements, or other periodic reporting of the borrower to the lender. It is important to be aware of this and understand what representations and warranties are being given and whether the borrower and/or the property is still in compliance, especially given possible adverse business changes that may have resulted due to COVID-19.

Hazardous Materials and Medical Waste

If you stop operating certain regulated facilities, even temporarily, you may be required to notify regulatory agencies and take steps to secure hazardous materials. If you handle infectious waste, increased quantities of infectious waste during this pandemic may trigger additional registration and reporting requirements.

Construction Projects – Delays and Permitting Issues

If you are currently involved in or about to embark on a build out or construction project, you should call the local boards or permitting authorities to determine whether the processing time is still on track. If it’s not, consider amending your documents to provide for the delay or determine if there is a provision in your contract that can be exercised to give you more time to perform, such as a force majeure provision.

AIA contracts typically provide contractors additional time to complete work when the contractor is delayed by unavoidable casualties or other conditions beyond the contractor’s control. This may require the architect’s approval if the architect is responsible for contract administration on the project. If you are encountering a delay in completing a project, you should review your contract to determine if there is a legal basis for the delay.