SFG Insights

Pandemic Issues for Commercial Real Estate & Business Owners

At Schultz Financial Group (SFG), we view wealth differently through our Four Capital approach. Our team works with you to build your wealth across Four Capitals – Financial Matters, Physical Well-being, Intellectual Engagement, and Psychological Space. This Financial Matters article focuses on pandemic issues for commercial real estate and business owners.  

The world of commercial real estate is constantly changing, especially in today’s current climate with the ongoing COVID-19 pandemic. The new pandemic issues rising have directly affected commercial property owners, business owners, and the overall future of commercial leasing. To obtain a better understanding of the recent updates, SFG interviewed two attorneys from the commercial law firm, Guild, Gallagher & Fuller, Ltd. in Reno, NV.  The broad-based civil practice was formed in the early 1950s and has provided legal services for publicly traded companies, business, and individuals ever since. 

We spoke to Gary Fuller who is a senior partner with the firm. He focuses on general business transactions, as well as real estate and estate planning. We also talked to Ken Creighton who is Of Counsel. He handles business formation, capital raising, employment matters, and serves as an arbitrator for the Financial Industry Regulatory Authority (FINRA). Both Fuller and Creighton have been practicing law since 1985. 

First, we turned to Fuller for more information on how the COVID-19 pandemic has affected commercial property owners, as well as the future of commercial leasing. 

What issues has the pandemic created for commercial property owners and what can an owner do to manage COVID-19 related liability risks?

Until the pandemic is managed, commercial landlords will face potential liability issues for building closures, service interruptions and potential COVID-19 infection exposure. Many existing leases contain provisions which may insulate the owners from liability for building shutdowns or service interruptions in the event of public emergencies. New leases will undoubtedly address these issues.

Governmental occupancy restrictions in the restaurant, retail, personal care, entertainment sectors, may cause commercial property owners to continue to face rent collection problems from distressed tenants.

Generally, COVID-19 will not excuse a commercial tenant’s obligation to pay rent. For many owners, however, strict enforcement of the rent provisions is not realistic under current circumstances. If rent relief is granted, it should be documented in a written lease amendment and should cover these points:

  1. The amendment should clearly set forth whether rent is merely being deferred or is being abated and clearly specify the scope (such as rent being deferred or abated but not operating expenses) and the duration of the relief.
  2. The amendment should obligate the tenant to apply for all available relief aid programs.
  3. Any such rent relief amendment should also contain a waiver of any other claims against the owner related to COVID-19 and a confidentiality provision (so one tenant is not disclosing the terms of their rent relief to other tenants).
  4. Consideration also should be given to whether the owner wants to exact a longer lease or other concessions from the tenant in exchange for rent relief. 

A commercial property owner can manage the liability risks that are related to COVID-19 by conducting property walks to assess risks and implement policies that will encourage social distancing, hand-washing, quarantining when sick, increased disinfection of common areas, and consider whether any physical barriers or mechanical ventilation systems could reduce COVID-19 hazards. 

What is the expected future impact of the COVID-19 crisis on commercial leasing?

It is anticipated that many tenants will want their leases to anticipate and address the next potential public health crisis. Some tenants will want their new leases to contain reciprocal force majeure clauses or provide for rent relief if a new pandemic prevents or restricts business operations. Such lease provisions should be negotiated which are fair to both parties.

A clause which specifically addresses public health closures is probably preferable to a general force majeure clause. That clause should:

  1. clearly define the public health closure event which triggers rent relief;
  2. address the duration of disruptions before relief kicks in;
  3. the scope of the relief;
  4. whether the relief is rent deferral or abatement (or a combination);
  5. repayment of deferred rent; and
  6. whether there will be an offsetting lease extension.

 Leases in the future should also:

  1. clearly allow owners to close down or limit building access during public emergencies;
  2. address the obligation to clean and disinfect; and
  3. limit the owner’s liability in the event of such an emergency. 

 

We then turned to Ken Creighton to share an update on the pandemic issues facing businesses, how they have been affected by COVID-19, and discuss the increase in employer liabilities.

What are some of the business and employer liabilities associated with COVID-19?

Since the pandemic began, approximately 1,500 cases, excluding administrative actions, have been filed across the country (around 5 or so in Nevada) alleging a myriad of claims. The bulk of these have been filed in the healthcare, retail, and manufacturing sectors.  

Business decisions based on the pandemic, are being challenged as a ruse for a nefarious purpose. For example, where a company is laying off workers or reducing operations in response to COVID-19, employees challenge the decision on grounds that the employer is using COVID-19 as a pretext for doing what it could not otherwise do (e.g., laying off older workers). Or the employer received a lot of PPP money, but the employees got laid off. Why? Or the employer failed to provide sufficient Personal Protective Equipment (PPE) and as a result the employee felt they were forced to quit (“constructively discharged”) from their job as a bartender.  

So, what is an employer to do? They should follow and implement, where appropriate, guidelines issued by OSHA and the CDC. Wearing a mask, social distancing, and, if an employee is sick, making them stay at home come to mind. May an employer require employees to wear a mask as a condition of coming to work? In most cases an employer may suspend an employee for refusing to wear a mask at work. There are exceptions in cases of a bona fide disability (e.g., respiratory condition) (covered under the ADA) or in cases of a sincere religious objection (covered under Title VII of the Civil Rights Act). There is, of course, a new Administration in Washington, D.C. and the Nevada Legislature went into session on February 1, 2021. President Biden recently proposed a new Executive Order allowing employees to file for unemployment benefits if an employee quits because they believe their working conditions were unsafe. We will need to continue to monitor further new developments.   

May a Business or Employer Require an Employee to Get Vaccinated?

The COVID-19 vaccine has become more widely available, yet there is currently no law or regulation stating that employers can mandate a COVID-19 vaccination for their employees. The U.S. Equal Employment Opportunity Commission (EEOC) hasn’t prohibited flu vaccine mandates as long as the requirement is job-related and a necessity. As for COVID-19, whether or not that will become the case is undetermined. In December 2020, the EEOC issued guidelines that employer-mandated vaccination programs generally do not violate anti-discrimination laws, including the ADA. There are exceptions for a bona fide disability or medical objection, or for a sincerely held religious belief(s).    

 

The world of commercial real estate will continue to evolve as there are constantly new developments with the pandemic. If you are renting during this time, pay close attention to additional clauses in lease agreements that account for potential rent relief during a health crisis. For business owners, keep an eye on the distribution of the COVID-19 vaccine and any regulations that will be developed by the current administration. If you would like additional information, please feel free to contact us or  Guild, Gallagher & Fuller, Ltd.

Thank you Gary and Ken for sharing your insights about some of these pandemic issues with the SFG Community!

 

Schultz Financial Group Inc. (SFG) is a wealth management firm located in Reno, NV. Our approach to wealth management is different from many other wealth managers, financial advisors, and financial planners. Our team of fee-only fiduciaries strives to help our clients build their wealth across four capitals: Financial Matters, Physical Well-being, Psychological Space, and Intellectual Engagement. We provide family office and wealth management services to clients located in Nevada, California, and other states. If you’d like more information, please check out our website or reach out to us via our contact page.

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