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Key Leasing Considerations for Commercial Landlords in the Age of Coronavirus

Tenants may be worried about the spread of COVID-19 and request safety upgrades when negotiating leases. This True Food Kitchen recently opened in Ohio.

By Addison Fairchild, Baird Holm

At its onset nearly nine months ago, the novel coronavirus forced federal, state and local leaders to consider measures necessary to prevent the virus’s inevitable spread. Those leaders imposed measures they calculated to balance minimizing the spread and harm of coronavirus to the national and local economies.

Whether those measures were effective in achieving those goals is a question for another day. However, now that coronavirus is currently a part of daily life, businesses have been considering what measures they must take. Like political leaders, they must also consider balancing the potential liability they may face for the spread of the coronavirus or other illness, the harm to their patrons and clients, and the harm to their bottom lines.

Addison Fairchild, Baird Holm

Commercial landlords are not exempt from considering the coronavirus or other pandemics in future leasing. It is unlikely a court would find a commercial landlord liable for the spread of a pandemic in their leased properties, except in rare circumstances. However, tenants may require landlords to provide upgrades to properties to ensure the safety of the leased premises.

This article considers whether landlords may be liable for the spread of a pandemic in their leased premises. It also discusses requirements tenants may have when negotiating the lease of commercial properties. It concludes with suggestions on how landlords should handle negotiating those requirements with tenants.

I am a commercial landlord. Will I be liable for the spread of illness in my leased premises?

A landlord’s liability for the spread of coronavirus or other illness would likely come from a negligence lawsuit. For a landlord to be found liable, a plaintiff would need to prove several things, including that the landlord owed a duty to protect others against the spread of illness, the landlord breached that duty, and that breach caused a person’s illness resulting in damages.

While not impossible, it is unlikely a court would find that a landlord even owes a duty to a tenant’s invitees to prevent the spread of illness. Courts often find that where there is a unique relationship between a plaintiff and a defendant, such as an employer and an employee, a duty is owed. However, a landlord probably does not have a unique relationship to its tenant’s invitees. A landlord is more likely to owe a duty to its tenant.

In the rare circumstance a court does determine a landlord owes a duty to his tenant or tenant’s patrons or clients, a court then has to also determine the landlord breached his duty of care and that breach caused the harm.

If a landlord acts reasonably by providing reasonably safe premises, a landlord should not be found liable for the spread of illness in the premises the landlord is leasing. However, even if the premises are not reasonably safe, it would be highly unlikely a court could link the spread of illness directly to a portion of the premises the landlord is responsible for. For example, it would be nearly impossible for a court to determine that it was the air filtration system that directly caused a person to contract coronavirus, as opposed to contact with an infected person also in the premises.

Overall, it is unlikely a court would hold a landlord liable for the spread of illness in a leased space. Nonetheless, tenants may still demand heightened safety features when negotiating leases. By providing some of those features, a landlord may further decrease its potential liability for the spread of coronavirus or other illness in leased space.

What are my tenants going to ask me for? And is it reasonable for me to provide those upgrades?

Tenants may be worried about their own liability, as they have a more direct relationship with those parties. For that reason, tenants may request several safety upgrades when negotiating to lease commercial space.

Upgraded air filtration systems

Because coronavirus — among many other illnesses — is an airborne illness, tenants may require upgrading the air filtration components in an HVAC system. Typically, standard commercial buildings utilize filters with a Minimum Efficiency Reporting Value (MERV) rating of 11. The higher the MERV rating, the more effective the filter is in filtering particles out of the air. For perspective, MERV filters range from 1 to 20. MERV 1 filters are typically pre-filters in commercial buildings, MERV 12 filters are typically found in homes and MERV 20 filters are used in operating rooms.

Upgrading filters to higher MERV ratings may be commonplace for tenants to request when negotiating leases in the future. Albeit not cheap to upgrade an entire filter system in a large commercial space, it not only adds a shield of protection for tenants and their patrons, but for the landlord if ever sued for the spread of coronavirus or other illness.

In lieu of or in addition to upgrading air filters, landlords may also consider supplementing with additional air filters such as High Efficiency Particulate Air units or UV-C (ultraviolet) lights. These additions help reduce specifically infectious particles in the air. Both options are relatively inexpensive and add a layer of protection for both tenants and landlords in the event of a lawsuit.

Cleaning contracts, specifications

Tenants may also have more stringent requirements when agreeing to cleaning specifications, which are typically addendums to leases. Tenants leasing premises in large commercial buildings with several other tenants, such as large office buildings, mixed-use developments and malls, may require more frequent cleaning of shared spaces. They may also require higher standards of cleaning, ranging from what needs to be cleaned (for example, elevator buttons) to what materials cleaning suppliers use.

What can I negotiate in my lease if I am going to make upgrades to my commercial premises?

What tenants may require may become expensive. Of course, a landlord can incorporate cleaning into common area expenses or additional rent. But, for expensive upgrades, a landlord may also negotiate for provisions that will limit its potential liability in the future.

For example, a landlord may negotiate to ensure a pandemic is explicitly not within the covered events within a force majeure clause. A vast majority of commercial leases currently contain force majeure clauses. However, whether a pandemic triggers a force majeure clause, relieving parties from their obligations under a lease, is a question that is currently making its way through the courts. A bankruptcy court in Illinois determined a restaurant lessor was partially relieved of the obligation to pay rent under a force majeure clause in a lease. Whether this will be the typical outcome is yet to be seen.

To avoid the uncertainty of how courts resolve this issue and having to litigate this issue in the future, landlords may explicitly exclude pandemic and stay-at-home orders from force majeure clauses. This exclusion may be a bargaining tool for a landlord when agreeing to additional safety provisions.

A landlord may also negotiate a provision waiving them from liability in the event a tenant is sued because a tenant allowed coronavirus or other illness to spread within the leased premises. These liability waivers are legal and found in many leases and license agreements, and may also include waivers from liability for illness resulting from a pandemic. Again, this provision may be a bargaining tool.

Commercial leasing in the future may look different, but the changes are manageable.

When leasing in the future, considering the consequences of a pandemic will be unavoidable for commercial landlords. While it is unlikely a court would find a landlord liable for the spread of coronavirus or other contagious illnesses through the landlord’s leased premises, tenants are sure to require heightened safety measures. By working with these tenants’ requests, landlords will be able to continue to provide high-quality commercial properties while also limiting their own potential liability.

Addison Fairchild is an attorney in the real estate group of Baird Holm LLP in Omaha, Nebraska. This article originally appeared in the October 2020 issue of Heartland Real Estate Business magazine.

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