These are the most pressing questions asked by tenants in this crazy COVID-19 world. The short answer to both questions, for both residential and commercial tenants, is: not without the landlord’s consent. However, as noted below, negotiation may be possible.
For residential tenants, a sudden cessation of income due to job loss is not a defense to nonpayment of rent. This holds true even for a situation as extreme and unprecedented as mandatory business closures. Some residential leases may contain a “force majeure” clause that excuses performance due to an “act of God” beyond the control of either party. Unfortunately, almost all such clauses are written to favor landlords and do not apply to payment of rent.
Nor is loss of income grounds to break a residential lease.
Commercial tenants are basically in the same boat with some exceptions. Many businesses carry business interruption or rental insurance which, depending on policy terms, could be invoked to cover losses. [Though many of these policies exempt actions by the government or based on public health.] Businesses forced to close might argue that they have been constructively evicted. This defense is unlikely to fly as it requires an act of the landlord causing the eviction. Here, clearly, there is none.
Note: simply walking away from a lease, residential or commercial, is almost certainly a bad idea. Unless the landlord is able to re-rent the space at the same or greater rent – exceedingly unlikely in the current environment – the tenant remains liable for the balance of the lease. Moreover, many leases have guarantors who would be jointly and severally liable for any unpaid balance.
All is not necessarily lost, as it may very well be in the landlord’s interest to negotiate a payment plan and/or forgiveness of rent in order to retain the tenant. The post-Covid-19 world is a huge unknown, including for the real estate business. The recovery could be long and slow. Rents may be depressed for some time as residents flee NYC and businesses close their doors forever. Keeping existing tenants, even if at a lower rent, may actually be in the landlord’s interest.
If you’re a tenant and want to discuss your options, give David a call at 212.285.1300.
