The COVID-19 pandemic and resulting government prohibitions on individuals and businesses in Michigan have placed unprecedented pressure on commercial landlords to offer flexibility to struggling tenants. While commercial evictions were not expressly prohibited in the state of Michigan, many landlords, due to the lack of access to courts as well as concerns about the availability of replacement tenants, have chosen to take a more conservative approach in order to retain the tenants that wish to remain.
The best outcome for all parties will occur when the tenant and the landlord keep the lines of communication open with each other while reviewing options and negotiating temporary modifications to the terms of the current lease so that both parties can meet the needs of their unique situations.
Common Short-Term Lease Modifications due to COVID-19:
- Short-term rent deferral: The postponement of rent for a specific period of time, generally 30-90 days, with specified terms for repayment.
- Short-term rent abatement: Due to partial or total loss of income, a temporary adjustment of rent without a requirement for repayment.
- Rent abatement plus lease extension: A short term period of rent-free or rent adjusted occupation tied to an extension of the current lease.
- Lease termination settlement: A termination of the current lease for a negotiated penalty.
The ability of the landlord and tenant to reach a short term lease modification will likely depend on multiple considerations such as: willingness of both parties to negotiate, current lease terms, tenant’s current status and revised business plan, tenant’s access to business loans or grants, and the landlord’s ability to secure a new tenant.
If there is no room for negotiation or modification of the current lease terms, a tenant is generally obligated to pay rent during the entire term of the lease, absent a specific lease provision which grants the tenant a right of early termination. However, there may be certain clauses in the lease or common law doctrines that tenants may invoke in order to attempt to terminate the lease early or support non-payment of rent, such as:
- Force Majeure: Many commercial leases incorporate a force majeure clause to excuse or delay a contractual service obligation, primarily by the landlord, if an unavoidable event prevents the completion of the service. Most of the time, however, this clause does not include payment of rent by the tenant. Also, as courts tend to view force majeure clauses quite literally, an attempt by a tenant to invoke force majeure to support non-payment of rent will likely fail unless the contract specifically cites an epidemic or pandemic.
- Constructive Eviction: This common law doctrine can be invoked when a landlord has, though negligence or intended action, deprived the tenant of his intended use of the premises. While the fault of a pandemic cannot be assigned to a landlord, the introduction of the pandemic to the specific site by the landlord or negligence on the part of the landlord to prevent its spread could potentially validate a tenant’s claim of constructive eviction.
- Frustration of Purpose: If a tenant is limited to a specific purpose per the lease and that purpose has been prohibited due to COVID-19, the tenant could attempt to invoke the frustration of purpose common law doctrine to argue that an unforeseen event has frustrated the reason they entered into the agreement in the first place, invalidating the lease.
- Impossibility of Performance: Similar and often confused with frustration of purpose, the impossibility of performance common law doctrine could potentially be invoked by a tenant based on the premise the pandemic and subsequent restrictions, unforeseen at the signing of the contract, have rendered the performance specified by the lease objectively impossible.
Strobl is a team of experienced and trusted lawyers that can advise on all matters relating to commercial leases in Michigan, and in particular during this time of COVID-19. For more information, visit Strobl online at www.stroblandsharp.com or on LinkedIn.