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Like many others, I’m sitting here in social isolation wondering what to do next. Real estate has been part of me for so long that I thought the conventional real estate norms were a bedrock to the trade. I won’t bore you with what they were; I don’t think they matter much anymore. Of course, I don’t expect truths like location, location, location to go out the window. The post-pandemic world will surely dictate a new view of what value those terms hold going forward. We are in a new normal for the foreseeable future.
There are many what-ifs. Take, for instance, the area of leasehold interests. Many have been impacted due to this outbreak with concerns never thought of for most parties. Say you’re a landlord who just inked a lease and is starting on tenant improvements. The tenant calls and says they are unsure about going forward with their lease. You have spent a significant amount of time and money at this stage in the relationship. What now? This is just one of the issues that will bring a sweat to landlords’ brows.
As you navigate this crisis and prepare for the effects, consider the following areas and take time to address these questions with your insurance agents and legal counsel:
Business Interruption Insurance
Will insurance companies view the pandemic as an insurable loss within the policy guidelines? If no, then what? Force majeure, pandemic insurance and business interruption all require a review of your policy documents. Discuss these matters with your attorney and call your insurance agent with questions. Make a list of them to maximize your call. Take notes.
If the policyholder is so fortunate to be made whole by the policy, who is entitled to the payout? If you have made provisions to assist a tenant during this time, document what you worked out. Was any payout of business interruption insurance factored into a lease work-out and to be relied upon for payment in whole or in part? You will need to answer this and document it in any lease or rental agreement modification.
Force Majeure
This could be considered a fancy term for “all bets are off.” Is the coronavirus a force majeure? I believe so; the pandemic is an occurrence most of us never factored in before it happened. Legally and from an insurance viewpoint, again, contact your attorney or agent. This will be interesting as there are riders galore and verbiage to the contrary. Ask your professionals.
How long this will take is anyone’s guess, and we may still be in quarantine when you read this. If you can, scan your leases and other documents so they can be searchable for key phrases and terms. For example: force majeure, business interruption, termination clause, loss of use, etc. If you have questions, now would be the time to ask a real estate attorney.
Lease Abandonment And Other Leases Issues
What if the tenant never comes back? With the rental eviction stays in effect, are you, as the landlord, able to enter and secure the property? Can the property owner dispose of the tenant’s property? What if the tenant returns? Regarding any actions in which you feel that your taking possession of leased premises or tenant property could be in question, ask one. Call your attorney.
Mortgage
Say you have a loan and aren’’t able to pay your mortgage. Did you receive forbearance from your lender? Did you just not pay regardless of the case? How will this affect your tenants? If any part of this applies to your situation, seek guidance from legal counsel.
Utilities
Who is responsible under a lease where the landlord pays the utilities and the tenant stops paying rent? Can you as the landlord shift the burden to the tenant? Can you let them be cut off for non-payment? Can or will your city even cut utilities under these conditions? Contact the contracted public utility for guidance.
Co-Ops, HOAs And Common Area Fees
What happens when you realize that the parking lot needs some work and there are a few bulbs out in the lot and walkways? Be sure what capacity to operate you or the property owner has. If tenants pay, they expect value. Make sure you are delivering what your tenants expect. Check your lease document for issues as they relate to levels of occupancy, common area fees, maintenance. Be communicative and open — no one saw this coming, you nor your tenants.
Should I Buy Or Sell At This Time?
This is for sure the burning question of the day. I believe it has always depended on the situation of the client. This still applies. Trade-offs will need to be made by most people and companies. Why do you want to sell or even consider it? Do you need the money to maintain your reasonable lifestyle? Is it a panic reaction or outside agitation?
As for those who wish to purchase, now may be a good time and it may not. You will need to conduct a lot of investigation since the ground and appetites for control may change toward the downside for the property owner. I would advise firming up what you have now and keeping your eyes open. Find a broker who can guide and advise you.