Commercial leases are an integral part of any business operation. These specific leases differ from standard residential leases in many different ways, by allotting much longer lease periods and giving the tenant more responsibilities for the overall maintenance and upkeep of the property. Unfortunately, however, many landlords in Texas and across the nation have found themselves unsure of when they’ll be able to turn a profit. This is because many tenants, including brand name retailers, are choosing to forgo making timely rent payments in full, or completely terminating their leases. In order to understand this recent phenomenon and how landlords can protect their livelihoods, it’s important to examine commercial lease disputes and how the ongoing pandemic has affected them.
Commercial Lease Disputes and COVID-19
Commercial leasing is a complex process that typically involves sophisticated parties on both the tenant and the landlord sides of the deal. The key terms of a commercial lease often include:
Rental amounts owed
The ability of either party to terminate the lease
“Force majeure” clauses
These items are all deal points that should be heavily negotiated with the assistance of lawyers. Unlike residential leasing, where the landlord almost always possesses the greater economic and bargaining power, in a commercial lease, often the tenant has most of the power.
This bargaining power typically possessed by a large or national tenant has come to the forefront during the ongoing COVID-19 pandemic. While there are laws designed to protect residential tenants from evictions, large commercial tenants who have the economic wherewithal to pay rent have simply stopped paying or have opportunistically used the pressures of the pandemic to extract better lease terms. While these practices have flown mostly under the radar, they are happening quite frequently as of late.
Many Commercial Landlords Are Small Family-Owned Businesses
A common misconception is that the landlord always has the upper hand in a commercial lease. This is simply not the case in most instances. While there are institutional landlords, such as real estate investment trusts (REITs) with large portfolios, in many situations the landlord is a family-owned (or otherwise closely held) business. Often, the property being leased is the only real estate asset owned by the landlord, and provides a major source of its revenue. Although some landlords may own the property outright, most have mortgage obligations that are non-excusable simply because a large tenant has stopped paying rent.
In many recent cases that have cropped up due to the COVID-19 pandemic, the tenant is the party that is well equipped to withstand a downturn or a government-mandated shutdown due to the global pandemic. In fact, large regional or national restaurant and retail brands have strategically sought out smaller landlords over whom they can exert control in order to gain more favorable lease terms.
Commercial Tenants Have Left Rent Payments Unpaid at the Expense of Landlords
Despite a commercial lease being a legally binding contractual agreement that requires timely rent payments, many large tenants have refused to pay rent during the pandemic. Additionally, despite a lease prohibiting the abandonment of the space being leased, some tenants have relocated to a different property where they could extract better lease terms.
Not every landlord can agree to a rental abatement or reduction during these incredibly tumultuous times, especially if the landlord is not getting any relief. Because of this, landlords are faced with a conundrum – on one hand, the tenant is refusing to pay the agreed amount because business has slowed or dried up, but on the other hand, the mortgage holder bank is still demanding payment. This ultimately leaves landlords in a very difficult position with nowhere to turn.
Raizner Law Can Help With Commercial Lease Disputes
Many businesses have faced a myriad of issues during these uncertain times. For commercial landlords, this includes grappling with tenants that have wrongfully delayed paying rent, not made rent payments, or broken their leases entirely. Raizner Law has represented commercial landlords in Texas and around the nation for years. If you are a commercial landlord dealing with a large or national tenant that is delaying or refusing to make rent payments at the expense of your business, contact the attorneys at Raizner Law today to start building a case.