While some residential tenants have had difficulty paying their rent thanks to widespread unemployment, commercial tenants have seen their earnings decrease significantly during lockdowns and gradual reopenings. Landlords and tenants will need to find creative solutions to keep businesses going, which will ultimately benefit them both.
Unpaid rents are especially problematic in the commercial context, with 45% of retail rents unpaid in April, in contrast to approximately 10% unpaid for apartment households. In response to unpaid rents, landlords and governments have taken varied approaches to eviction moratoriums and how to proceed without them. In Atlanta, where there is no formal eviction moratorium, the owner of Ponce City Market and the Westside Provisions District has set aside $50 million for tenants to use to pay rent and facilitate reopening. The company’s president, Michael Phillips, pointed out that this helps both the tenants and the company, which will be able to avoid having vacant properties caused by tenants going out of business. Phillips stated, “We’re all in this together. I’d like to say it’s all altruistic, but it’s also a good longterm business management decision.” For other landlords who may not have the resources to create a fund for their tenants, one Decatur attorney has stated that they will still need to find alternative options to work with tenants, for example through lease adjustments.
In California, a bill was proposed to help businesses in the hospitality industry that would have extended California’s eviction moratorium, allowed for renegotiation of lease terms by tenants, and allowed deferral of some rent payments into 2021. Critics of the bill argued that it could cause financial collapse to the real estate industry, while supporters warned that small businesses could face a “mass extinction” without it. Ultimately, the bill failed in committee. Many are relieved about the bill’s failure and consider mass vacancies highly unlikely, as it is ultimately in landlords’ best interests to keep their tenants and avoid vacancies.
While there have been showings of cooperation between landlords and tenants, the country’s largest mall operator has taken a different approach. Simon Property Group has sued Gap Inc. and Brooks Brothers for millions of dollars of unpaid rent. While Gap does not believe it is obligated to pay rent when stores are closed, Simon’s CEO stated that “we do have a contract and we do expect to get paid.”
As both landlords and tenants face the fallout from the pandemic, mutual solutions may prove to be the best answer, although not everyone appears to be taking this approach.
About the author
Melanie Tate is a J.D. candidate at Emory University School of Law. Melanie earned her B.A. in literature from Louisiana State University. She is a 2019 – 2020 legal intern at Caiaccio Law Firm.