The Covid-19 pandemic and the government’s response to it raise issues that may require legal action down the road. Governors and mayors across the country (including in Minnesota) have ordered bars, restaurants and other businesses to close. Many of these closed businesses lease their spaces. As long as they cannot generate revenue, a lot of commercial tenants will be unable to pay rent. Non-paying tenants risk getting sued by their landlords for breach of their leases.
Closed businesses and their landlords should take at least three steps to address the legal fallout from Covid-19:
First, check if the tenant has insurance coverage that might apply (e.g., business interruption insurance).
Second, review your lease agreement to see what, if any, provisions govern when the tenant is forced to close its business. Force majeure clauses and assumption of risk provisions are likely to come up in future litigation.
Third, consider whether the tenant has any legal excuses for non-payment of rent. Minnesota courts recognize impracticability and frustration of purpose as defenses to contract performance. In the past, courts have decided parties were relieved of their contractual obligations due to unanticipated government actions and war. Although prior emergencies are somewhat analogous, every case is unique. Whether the current Covid-19 crisis and state-mandated business closures provide a legal basis for tenants to avoid paying rent will depend on each tenant’s specific circumstances and lease terms.
The attorneys at Anthony Ostlund are ready to answer your questions about the impact of Covid-19 on your commercial lease rights and obligations. Please contact us if you would like to discuss in more detail.