All around us we see more signs that pandemic restrictions loosening and the opportunity for a “return to normal” is growing. But for commercial real estate landlords and tenants, will there be a new normal? The lessons of this pandemic will likely bring both short-term and permanent changes to the commercial leasing landscape. Portland Law Firm Tonkon and Torp recently gave us some things to think about regarding the future of commercial leases, including:
Landlords getting people back into their properties — This is particularly true for retail, but it also applies to office and mixed-use settings. Almost without exception, more people around means more business for tenants and fewer defaults and vacancies for landlords. So in the short term, we should probably expect a tenant-friendly market, as landlords offer incentives to fill vacant space and to encourage existing tenants to return to full use of their space as soon as possible.
Negotiating commercial leases — Force majeure clauses, once relegated to the “miscellaneous” section of a lease and usually given little if any thought, now likely have a permanent home near the top of most leasing checklists. Tenants and landlords alike will want to establish concrete rules about how a future pandemic or government shutdown affects the parties’ rights under the lease.
Increase in triple-net leases — Tenants on full-service leases during the shutdown accrued a lot of rent for services that they couldn’t use, while triple-net tenants likely saw their triple-net charges drop significantly. Similarly, expect tenants to want to have more control over utilities and other service costs so that they don’t end up paying for something they aren’t using.
Lastly, a defining feature of the pandemic was the nationwide effort to provide eviction protection to tenants unable to pay the rent. While protection for residential renters received the most press, many states (including California) passed laws handcuffing commercial landlords from proceeding against delinquent tenants for a considerable period of time. In the next wave of leases, we can probably expect landlords to try to find ways to avoid or minimize the impact of similar moratoria in the future. So expect landlords to get creative and to propose novel new language in an effort to reduce their future exposure.
As we all can see, legal disputes are EVERYWHERE! And when those annoying things negatively impact you and your business including landlord/tenant matters, contract issues, nuisance ADA claims and even collections, call in your good guy business litigator, Dean Sperling to resolve YOUR matter with YOUR best interests in mind!
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