In response to the COVID-19 outbreak, thousands of companies quickly reorganized to enable employees to work from home for the foreseeable future. The success of these efforts raises the question, what if these companies now decide they do not need as much leased office space as previously believed? What could that mean for the commercial real estate market in the long run?
It is reasonable to expect that the shelter-in-place and work-at-home mandates (which have likely required technology investments by tenant companies) will foster confidence in companies that their employees can work efficiently and productively away from the traditional office setting. Further, new products are being launched almost daily to improve their work-from-home experience.
As a result of the COVID-19 crisis, tenants are asking (or arguing) to be excused or released from rental obligations under commercial leases. Whether such arguments will prevail, however, is an open question. Deferment – as in paying no rent for perhaps the next two months with the requirement to be “caught up” at some point by the end of the year, be it the lease year or calendar year – has become a popular term. But, in nearly every case, that’s a favor, not a right, granted by individual landlords.
The resolution of a tenant’s demand for rent forgiveness or deferment will depend on the applicable state law. Even with a form lease, the same lease with the same parties might be treated differently and have a different result, depending on the location (assuming the lease adopts the laws of the situs of the premises, as many do). There are a number of “no eviction” orders that local cities have put into place, but that’s essentially a patchwork of mostly local court rules, and each one has its own unique elements.
Ultimately, tenant companies considering making a big change – like walking away from their office leases and adopting a fully remote, work-from-home model – may need to tap the brakes. If you are a tenant, be careful, read your lease and seek legal counsel. Each situation is going to hinge on the specific terms of your lease and applicable state law. There are undoubtedly provisions in any lease that protect the landlord’s interest, and you should expect a landlord to enforce them. Without a thorough review of your lease and consultation with legal counsel, no tenant should make the decision to walk away from its lease obligations as a result of the COVID-19 pandemic.