Novel Coronavirus Considerations in
Commercial Real Estate Transactions

Leasing and Property Management:

  • As you can imagine, landlords are taking a variety of approaches to deal with requests for rent relief from their tenants. ​ ​ The most thoughtful approach I’ve seen so far is the following by one retail landlord:
  1. For the month of April 2020, Landlord will temporarily defer the collection of rent. ​
  2. For the month of April 2020, Tenant agrees to pay April CAM, Taxes & Insurance.
  3. As the duration of the mandated closures remains uncertain, repayment plans for the temporarily deferred rent will be addressed when the lifting of the order is announced.
  4. As a condition of this temporary deferral you pledge to make application for the emergency disaster loan assistance program that is presently being made available to business owners in affected areas through the SBA, which is designed specifically for the purpose of ensuring your employees and other business specific expenses (including rent) remain paid. ​ Additional information and an application can be found here: ​ https://disasterloan.sba.gov/ela/Account/Login/
  5. Additionally, based on the pending federal stimulus package, it is expected that most retail tenants will be eligible for relief at least for rent and utilities. ​ Accordingly, it is critical that you seek this available relief, if only for rent.
  6. If you elect to participate in this temporary deferral program, please communicate your intent by forwarding an electronic copy of your disaster loan application (all pages).
  • The City of Los Angeles has an ordinance in effect until March 31, 2020 that prohibits commercial evictions within the City if the tenant is unable to pay rent due to “circumstances related to” the pandemic. ​ The LA County Board of Supervisors has also issued a moratorium halting all commercial evictions in unincorporated areas, which is in effect until May 31, 2020. ​ ​ The City of San Francisco passed a similar ordinance affecting SF-licensed businesses with less than $25 million annual gross revenues. ​ Many local cities such as Beverly Hills, Burbank, Culver City and Santa Monica have also passed emergency ordinances banning commercial property owners from carrying out evictions for failure to pay rent. ​ This is evolving almost on a daily basis so it’s critical that you check the city websites of the cities in which your property is located.


  • COVID-19 has presented new challenges to conducting due diligence during an acquisition. ​ ​ Consultants may be unavailable or timeframes for delivering reports may be extended. ​ Availability of capital for certain product types, especially retail and hospitality, are a consideration. ​ Even the valuation process must account for deteriorating tenant financials, extended lease up times and extended timeframes for completion of necessary improvements. ​ If you are a buyer, consider automatic extensions of the due diligence period. ​ ​ Sellers should consider permitting extensions only for those items which buyers could not reasonably investigate during the due diligence period and perhaps conditioning those extensions on increased earnest money deposits.
  • Seller representations and warranties need further scrutiny in light of issues raised by the pandemic. ​ Legislation is being passed on a daily basis in an effort to slow the spread of the virus, making it difficult for sellers to give a continuing rep regarding compliance with laws. ​ Sellers should also determine whether they can make representations regarding absence of landlord or tenant defaults under their leases. ​ Finally, PSAs often require that sellers continue to operate the property in the ordinary course during escrow. ​ These types of operating covenants need careful drafting to ensure that tenant defaults or vacancies during this period do not result in a claim of violation by the buyer.
  • Many recording offices are closing on a rolling basis, making it difficult for title companies to record lien releases and deeds. ​ Anecdotally we are hearing of national title companies refusing to issue title insurance for property in areas where they are unable to making these types of recordings. ​ For a buyer’s perspective, a well drafted title insurance contingency is critical. ​ For sellers, consider automatic extensions of the closing date until title insurance can be obtained.
  • Delivery of tenant estoppel certificates is often a contingency to closing. ​ Given the fast-changing nature of the viability of so many tenancies, buyers should consider whether the information it does obtain in a signed estoppel will still be accurate at closing and perhaps require a recertification of that information by the seller before closing. ​ Buyers should also consider requiring a larger threshold of signed estoppels for meeting the estoppel contingency.
  • While financing contingencies had largely disappeared in the last cycle, it may be time for buyers to reconsider adding such a contingency given the current uncertainly in the capital markets. ​ CBRE recently reported a life insurance company that walked away from a committed and rate-locked loan on a retail center.

Asset Management:

  • Landlords and borrowers need to assess the impact of any “force majeure” clauses contained in leases or financing documents. ​ These clauses typically excuse a party’s performance for periods in which such party cannot perform due to certain specified causes beyond such party’s reasonable control, including things like “Acts of God”, casualty, strikes, unavailability or shortages of labor or materials, and governmental orders. ​ We can assist by examining these clauses to determine whether the clauses at issue cover the current pandemic, what performance is excused and whether there are any limitations on the extension of time for performance.
  • Many borrowers signed loan documents that include “material adverse change” (MAC) clauses. ​ Some loan covenants simply require notice to the lender of a material adverse change while other covenants may treat the occurrence of a MAC as an independent default under the loan documents even if the mortgage is otherwise paid current. ​ Determining what is “material” is usually something for a court to decide. ​ ​ The case law generally places a “heavy burden” on the party invoking the MAC clause to show that a material adverse change has occurred and that the invoking party must demonstrate that the impact will “persist significantly into the future.” ​ My own view is that standards like these should give lenders pause before exercising remedies based on a purported violation of a MAC clause. ​ Since we do not know how long the current pandemic will last or its lasting economic effect on certain types of properties, it’s still too early to assess whether a material adverse change has actually occurred. ​ Proactive borrowers should at least consider giving required notices and taking other steps to communicate the situation “on the ground” with their lenders. ​ ​
  • Borrowers should also start by reviewing their rights and obligations under their loan documents. ​ Guaranties should also be reviewed to determine whether any financial covenants or reps have been violated. ​ ​ ​ While I am not aware of any restrictions enacted on exercise of lender remedies such as foreclosure, I am hearing of several jurisdictions that are considering restrictions on foreclosures arising from non-payment. ​ What is almost certain is that, if such restrictions are enacted, the burden will be on the borrower to show that its inability to make mortgage payments arose directly from circumstances related to the impact of the novel coronavirus. ​ For certain borrowers such as multifamily borrowers, Freddie Mac and Fannie Mae have already announced relief but only in exchange for an agreement not to evict financially impacted tenants.

Adam R. Salis, Esq.
Salis Law
26060 Acero, Suite 510 | Mission Viejo, CA 92691
(949) 590-9965 direct



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