Today, Hubris And Existentialism, Not “The Missing Comma”

Print
Print Friendly, PDF & Email

Hubris (hu·​bris), n. [Gr. Hybris].wanton insolence or arrogance resulting from excessive pride or from passion. That’s what it would be if we were to present today’s blog posting as if our subject matter was important in the current situation. It is also what all of us, unknowingly for sure, have demonstrated in thinking that our agreements could cover every possibility. If any reader had a COVAD-19 provision in their documents before January, we invite you to share it with the rest of us.

Countries have shut down walk-in commerce. In the states and Canada, stores, large and small, are closing “temporarily.” Restaurants, the “saviors” in today’s shop-on-line world, are closing “temporarily.” Hours are being cut back. Rents won’t be paid. Some, mainly marginal, tenants won’t be coming back. Some (pretextually) will use their co-tenancy right to “skinny down” their portfolios. We’ll all fight about the meaning of “force majeure.” We’ll be picking through our leases, open purchase agreements, and loan documents (including loan commitments) in an effort to “get out.”

Ruminations isn’t advocating any of that, but can’t pretend that our industry is an altruistic one.

Let’s remember that our industry is like a three-legged stool. One leg is the tenant; one is the landlord; and one is the lender. Without one of those legs, the stool won’t serve its purpose.

Fortunately, not everything needs to be in our agreements. We have the ability to adjust to changing circumstances on the fly.

What should we be doing to mitigate the long-term damage that the current, hopefully short-term, situation could create? Should or can lenders insulate themselves (at the expense of their borrowers)? Can landlords insist on “the rent is the rent,” almost certainly putting some tenants out of business? Are tenants, landlords, and lenders willing to share the burden based on who, in any given situation, can best bear the loss?

Regrettably, we are far from sanguine.

We’re sorry to disappoint any reader who hoped, today, to pick up a “nugget” in the form of some nuance of real estate law or practice. We’ll get back to that next week or maybe a few weeks later. Today, we’re concerned, not about nuance in our deals, but with an existential threat to business as usual.

Ruminations has thousands of readers, professionals from all corners of the real estate industry. So, we ask every one of you – “What do you think?” What are you doing? What do you think people in our industry should be doing? What do you think people in our industry will be doing? Please share your thoughts below.

Print

Comments

  1. This pain that is coming must be shared. Landlords should not evict and in turn should not face foreclosure as long as they are paying over to lenders any rent that they do receive. To avoid catastrophe we all need to agree to a stand still until our tenants have customers again.

  2. Like so many in the commercial lease industry, I have been fielding questions all week about the the rights and obligations of tenants and landlords in this current environment of uncertainty. My tenant clients all want to know about force majeure (“FM”) and how it may be invoked if their business is severely impacted by Covid-19. I am not a lawyer. So, I don’t know much about FM or any case law that might illuminate our current situation (and, even if illuminated, I am not likely to fully understand the legal ramifications). But, many tenants are already fearful that Covid-19 will decimate their business and they want to know if they can reasonably expect some form of relief. That’s understandable. So, my first question is this. Does a Covid-19 pandemic rise to such a level as to be considered a FM event? How and by whom is that legally established? Does President Trump’s declaration of a “National Emergency” automatically elevate the pandemic so as to legally qualify it as a FM event? Or, might that only follow if a community quarantine or travel restriction that is ordered by the government (town, state of federal) is enacted? And, if so enacted, and if that were to qualify as a FM event, does that mean that the tenant should automatically gain relief if he/she is unable to conduct sufficient business to survive? From what should the tenant gain relief and what form would that take? Rent? Taxes? Premises maintenance and repair? Timely notice provisions? Continuous/minimum operating requirements? Should the lease term be extended correspondingly for lost “term” during a business closure? Shouldn’t the tenant’s business interruption insurance come into play? Do laid-off employees qualify for unemployment insurance? Do dentists (my clients) have a legal obligation to provide clinical services to patients of record in spite of Covid-19? So many questions, So few answers. And for landlords, it’s no easier. To be continued.

  3. Ron Grant says:

    Should look for a force majeure clause in the lease to see if it will provide any relief.

  4. Thank you Ira for this timely article. The more deeply one examines and investigates the commercial and monetary legal impacts and resulting consequences of the Covid 19 epidemic, the more complex and murky one finds the legal analysis to become. It is definitely not a situation which is friendly to a binary “yes or no” answer. Even if one were to go back and research the legal jurisprudence originating out of the 1918 Spanish Flu Epidemic, that research is likely of very little use to us since today’s business and social world has changed so very much over the period of the last 100 years. I am informing my clients to carefully examine each and every situation on its own unique merits and to tailor make a solution that solves that concern today – and if need be, re-examine the situation and revise the game plan on a day-to-day basis, and if at all possible, avoid falling into the trap of the thoughtless herd mentality which I readily admit is a lot easier said than done.

  5. Anaheeta Kolah says:

    I’m an attorney in San Diego and own two restaurants with my Chef husband — we are a true mom and pop. We are grappling with this issue as we speak. I’ll be sending an email to the property manager asking for help in bringing in more business through alternative means — curbside service, no third-party delivery, but delivery directly from us, and whatever else we can collectively think of. I read your articles whenever I get the link in my email and I use the logic and practical suggestions all the time. Force Majeure — is a virus an act of God? The source of the infection is from a town, but, any disease/infection’s source is ultimately biologically created by God. By the time we get to the ultimate reasoning, our rent is due, the pandemic might be over, we have to pay our mortgage, our staff, health insurance, payroll taxes, sales taxes, home expenses, eat, and live. I hope that any closure won’t happen (God help Illinois and Ohio), and that we find a viable new way to deliver our services and food to the public. The law will take months to years to catch up to this new category of FM. Good luck businesses.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.