The COVID-19 Pandemic has touched every segment of society and has been equally harsh on tenants and landlords alike. Hopefully, recent declines in COVID-19 infections, increased vaccinations and yet another aid package from Congress will help end the crisis and provide some relief for both sides of real estate leases.
The American Rescue Plan Act (ARP), passed by Congress on March 10, 2021 and expected to be signed into law on March 12, 2021, is the latest in a variety of state and federal legislation offering some benefits for parties to real estate leases.
ARP includes a variety of programs which may assist tenants in paying rent, including additional Paycheck Protection Plan (PPP) funding, pandemic assistance grants for food and drink service business, and $21.55 billion for emergency rental assistance available to eligible residential tenants, in addition to other housing assistance.
On the residential side, tenant assistance in ARP will undoubtedly bring much needed relief to millions of residential tenants across the country. Many tenants have been protected from eviction during the pandemic due to a patchwork of state and federal legislation, but are now several months delinquent in payment. Landlords, who are in many cases facing their own defaults on mortgage obligations because of a lack of rental income, will hopefully see many of the defaults cured through ARP.
Commercial landlords may also benefit from ARP through additional PPP loan assistance or grants that will soon be available to restaurant and bar tenants. The ARP benefits to commercial tenants are in addition to other benefits extended to commercial tenants faced with bankruptcy through the Consolidated Appropriations Act of 2021 (CAA).
Among other things, the CAA temporarily extended deadlines for small businesses to begin repaying lease obligations when in bankruptcy. The CAA also extended the time by which bankruptcy debtors are required to decide whether to continue with their lease obligations (known as the decision to assume or reject executory contracts and unexpired leases). The extended deadlines are set to expire at the end of 2022, but for now provide an automatic benefit to small businesses leasing commercial space when bankruptcy is necessary.
These relief packages are likely not a moment to soon for landlords who are also being squeezed by lenders on mortgage obligations. For those landlords, it may be necessary to work with their lender on a loan modification, forbearance or other temporary resolution to remain in good standing.
Undoubtedly there will be landlords and tenants who are not able to resolve lease defaults by resuming payments, even with these programs, and will need to explore other alternatives. Any resolutions of course depend on the positions of the individuals involved, but some possible options for resolution include:
- Moving to smaller space for reduced rent
- Lease amendments for increased rent in the future
- Agreed surrender if conditions do not improve
- Confession of judgment for possession for Pennsylvania properties
- Additional security/guaranty agreements
While recent legislation and the hopeful end of the pandemic will hopefully restore things to normal, landlords and tenants are likely to continue to feel the crunch for several more months. The real estate, commercial, financial and insolvency attorneys at Bowles Rice can provide guidance for landlords or tenants facing these issues, whether the answer is to apply for government funding, negotiation with other parties, or, if necessary, to seek appropriate relief in courts or through the bankruptcy process. Should you have any questions, please feel free to contact me.