The COVID-19 pandemic has ushered in unprecedented challenges for people in nearly every industry, but the commercial real estate industry has been particularly hard hit. Initially, stay-at-home and shelter-in-place orders required people to stay home for weeks, which then led to months. Restrictions on businesses prevented businesses from reopening their doors or from operating at full capacity. Now, as the months drag on, it is important to consider the monumental impact that COVID-19 has had on commercial leases.
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Types of Commercial Leases Impacted by COVID-19
The COVID-19 pandemic took many people by surprise, and certainly, no one expected it to have such a lasting impact on commercial leases. These are the types of commercial leases that have been most impacted by the COVID-19 pandemic:
- Office Buildings — Many office buildings across the country emptied out in March, and some have still not resumed their full operations. Real Estate Investment Trusts, or REITs, have found that there was a 17% decrease in year-on-year investment returns with these types of commercial real estate buildings. Office building leases have not been impacted as negatively as other commercial properties, because many offices have continued to resume operations nationwide. In addition, office buildings have long-term lease agreements that would not be as risky during this time.
- Health Care Facilities — This may come as a bit of a surprise, but there was a 25% decrease on REIT returns in regards to health care facilities. Despite the fact that hospitals were required to remain open and focus solely on treating COVID-19 patients, many other profit-based health care facilities performing non-essential treatments were forced to close for weeks or months at the onset of the pandemic. Public uncertainty has kept many people away from health care facilities unless absolutely necessary, which has continued to impact commercial lease agreements.
- Retail Outlets — Commercial properties that lease to retail outlets were particularly hard hit during the pandemic, and these types of properties continue to see a lasting impact from the initial shutdowns. Some small businesses that rented commercial property could not survive the months-long closures, and others are still not picking up steam since restrictions were lifted. REITs found that there was a 48% decrease on returns from retail outlets as a result of the pandemic.
- Hotels — Travel came to a screeching halt in March, and many people are still not willing to stay inside a hotel again for fear of being exposed to the virus. As such, hotels have consistently been found to be hardest hit among commercial leases. REITs found that there was a 53% decrease on returns, and experts cannot predict how long it is going to take for the travel industry to recover from the pandemic.
Are Commercial Evictions Banned During the Pandemic?
While there were federal moratoriums on evictions for people living in residential real estate developments, commercial eviction restrictions were handled at the state and local level. During the first few weeks and months of the pandemic, many states put commercial real estate eviction restrictions in place in order to prevent businesses from unnecessary economic hardship during the stay-at-home orders. However, states across the country have begun to modify or lift those restrictions as they attempt to reopen their economies once again. Commercial tenants as well as commercial property owners should work with an attorney in order to understand the components of their commercial lease agreement and determine whether evictions are allowed at this time.
Are Rent Freezes Being Imposed During the Pandemic?
Similar to the ban on commercial evictions, commercial rent freezes during the pandemic were addressed at the state and local level. Some states did put rent freezes in place in the immediate aftermath of the COVID-19 outbreak. Others left rent freezes up to the local municipalities or to the individual commercial property owners who were managing their real estate investments. Rent freezes at this time vary based on the state or county in which a business operates, so it is important to work with a lawyer to understand what options are available to you.
COVID-19 Resources for Commercial Leases and Commercial Rent Relief
The situation surrounding the COVID-19 pandemic is complex, particularly for those who are invested in the commercial real estate industry. Fortunately, there are resources available to help individuals navigate through their commercial lease options and the opportunities for commercial rent relief. An experienced attorney who specializes in commercial real estate can guide you through these difficult times and help you maximize the resources that are available to you. These resources can serve as valuable tools that can help you endure this unprecedented time and come through the pandemic stronger than ever.In this ever-changing climate, both small business owners who are renting commercial property and property owners who lease commercial real estate to tenants will need to stay informed about the latest changes, guidelines and resources. For the most reliable information, commercial tenants and property owners are encouraged to ask a lawyer.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.