With the COVID-19 pandemic dealing crushing blows to retailers, restaurants and other businesses and their commercial real estate landlords, attorneys warn that skipping rent or mortgage payments could lead to other legal complications beyond the obvious.
More and more retailers and restaurants, as well as other businesses, have skipped payments to malls and office buildings recently as COVID-19 shelter-in-place orders shut down operations. Cheesecake Factory and Urban Outfitters are among the large chains that announced they did not pay the April rent during shutdown orders, according to news reports.
Bonnie Hochman Rothell, a partner and chair of the litigation practice at Morris, Manning & Martin in Washington, D.C., said in-house counsel for commercial real estate tenants should be mindful that tenants who withhold rent could face several repercussions beyond the obvious ones.
She said, for example, if they are getting funding under the CARES Act, the COVID-19 federal relief package, "if they are a small business that receives a PPP [Paycheck Protection Program] loan, it can be excused if they use the money to pay rent. The value of the stimulus is to enable that," she said. But "if they take the loan and then don't pay rent, it could prevent them from having the loan forgiven down the road."
"If establishments get the loan, they should be able to pay the rent in the short term and have time to work something more amicable out with their landlord," she said. "And they could end up with claims against them from their business investors and business owners if they don't have the proper consents." Hochman Rothell said businesses might be better off negotiating a reduced rent for the entire year rather than not paying any rent in the short term.
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