COVID-19 and Your Existing and New Agreements
In our brave new world of COVID-19 driven shutdowns and (hopefully) short-term economic changes and challenges, now would be a key time to look at your agreements for deals already under way and new deals going forward. Most everyone including developers, tenants, and landlords did not anticipate state governors shutting down portions of states and certain types of businesses due to a global pandemic. In light of the events of last few days, basic assumptions have to be examined in the short-term at a minimum. As this is far beyond what has been the norm, most agreements do not contemplate the effect of a global pandemic that shuts down businesses, government agencies, and slows down timing of obligations of the parties to the agreement. Now what?
If you are already party to an agreement that has deadlines and obligations to perform, you should seek counsel and see if either the agreement needs to be amended or if you need to determine whether or not a provision of the agreement could apply to allow for the change in circumstances such as these brought on by COVID-19. Buyers should take this approach proactively, and Sellers should consider the efforts expended to date to determine what is reasonable in an amendment.
Alternatively, if you are about to enter into an agreement, at a minimum timing should be considered providing for the possibility of a short-term shutdown or unavailability of resources for personnel in the public and private sector. For instance, many municipalities are postponing and/or cancelling meetings that affect the timing of approvals, and many private employers are restricting travel or prohibiting personnel from reporting to offices. Certain state agencies may be located in cities or towns that are on a shutdown, thus delaying the processing of applications and permit reviews and approvals. Moreover, this delay will most likely also create a backlog in reviews and approvals, further extending timing. What was considered typical timing for a zoning and/or land development approval should be re-examined and adjusted to provide for more time.
These considerations go beyond agreements of sale. If you are either a landlord or tenant under a commercial lease, you should review your lease to see what may be permissible during events like COVID-19 shutdowns and closures. Also, what about the effect on other tenants in commercial centers if certain types of businesses (day care center, restaurants, etc.) are forced to close and others deemed non-essential by state or federal officials are advised to close, but elect to stay open? Does the landlord have the ability under the lease to determine whether or not a closure is permitted or alternatively required in a COVID-19 situation? Could this trigger a business interruption claim? Tenants and landlords alike will be affected in the event operations are limited or shutdown. Once more, a proactive approach by both tenants and landlords in re-examining lease provisions will help you prepare and evaluate what steps must be taken.
While it is impossible to know the length of the COVID-19 effects, thought must be given to both existing and potential agreements, and you should seek counsel as you navigate this ongoing and developing situation.
The information contained in this publication should not be construed as legal or medical advice, is not a substitute for legal counsel or medical consultation, and should not be relied on as such.