Landlord and tenant negotiations during COVID-19

By now it’s well-known that Gov. Steve Sisolak ordered a moratorium on all commercial and residential evictions. Through various subsequent directives, the moratorium was extended and set to expire on July 1. Shortly before this expiration, the governor issued an emergency directive on June 25, allowing evictions for nonpayment of rent to proceed with a phased in approach.

Commencing July 1, commercial property evictions could proceed. However, the moratorium was extended until Sep. 1 for residential properties handing out evictions for non-payment of rent.

While the original directive prohibited evictions for nonpayment of rent, the governor made clear that all rent due and payable was still owed by the tenant, notwithstanding the eviction moratorium. The governor correctly encouraged landlords and tenants to work together to find solutions for payments owed by the tenant to avoid eviction upon expiration of the moratorium.

So, what is a landlord or tenant to do? It is imperative that the lines of communication between both remain open and the parties regularly communicate.

The governor’s office, in conjunction with the governor’s request that landlords and tenants work together, has created a useful template — Lease Addendum Promissory Note — for both parties to use when negotiating past due rent and curing of defaults. This simple, yet effective, lease addendum can be used for commercial and residential properties, and is an excellent negotiating tool that can be presented by either party.

There is no magic or correct solution for landlords and tenants. Rather, both are free to be creative and arrive at solutions that work for each of them. While tenants may struggle to pay rent as a result of business closures or limited business operations, or individual residential tenants struggle with unemployment or reduced work hours, many resources are available, such as the PPP loan program or enhanced unemployment benefits. Open discussions with one’s landlord regarding the available resources for non-performing tenants can assist in the negotiations.

Landlords also face difficulties when tenants are not paying rent. Landlords have fixed expenses such as insurance and taxes, which must continually be paid, along with underlying mortgages on their properties and thus have lenders to answer to as well. Even with the lifting of the eviction moratorium for commercial properties on July 1, landlords and tenants are still strongly encouraged to work together during these difficult times. Landlords rarely want vacancies if they can be avoided (of course, some tenants may never recover in any event).

Solutions vary. For example, the governor’s template merely suggests curing rent defaults by arranging payment plans. Whether the agreement requires the tenant to make additional weekly or monthly payments in addition to their normal monthly rent going forward, provides rent relief until the tenant is able to pay rent once their business is operating, or until the individual is re-employed, it’s all open to negotiation. In the commercial context, solutions may include tenants paying only operating expenses owed under the lease, such as insurance and taxes, until the business can reopen or ramp back up to regular monthly rent payments, sometimes in combination with either forgiveness of rent or a payment plan to cure the past due amounts. When rent forgiveness or abatement is involved, it’s common to see the lease extended, or additional rent escalators in future lease years, so the landlord can see the long-term economic benefits. Ultimately, there is no one size fits all solution; rather parties should be creative to arrive at a solution during these uncertain times.

Thomas Fell is a director at Fennemore Craig Attorneys. He practices in the areas of business restructuring and bankruptcy, creditor’ rights, commercial litigation and landlord/tenant law. He is involved in all aspects of the firm’s complex insolvency practice, including representation of several major hotel and casino companies. His representation of debtors and creditors in non-gaming companies ranges from large multijurisdictional companies to single-asset real estate developments including retail power centers and office complexes.

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