Covid-19 and Medical Leases: 3 Proactive Steps You Can Take to Avoid Issues Down the Road
Jordan Uditsky • March 25, 2020
The rapid spread of Covid-19 in the United States over the past three weeks has launched dental and medical tenants into “uncharted waters” with respect to their leases.
All dentists and dental specialists, along with a variety of medical providers have been ordered to shut down operations, with no certain timeframe as to when they will be allowed to return to work. While April 7th is the date that has been offered as the possible restart date, the exponential growth of the outbreak at this point casts doubt as to whether that timeframe is realistic.
The mid-month timing of the shutdown was such that many dental tenants had paid or were about to pay their April rent. We recommend that you remit your April rent payments on time, assuming you can do so. This will give you the entire month of April to see how the Pandemic plays out and hopefully, enable you to begin earning patient revenue again without compromising your lease obligations.
What Should You do if the Stop Work Continues Beyond April?
The question is, what actions should you take assuming the “stop work” order drags on and you cannot afford to pay rent? Many landlords with whom we have spoken are already concerned about their tenants’ ability to pay rent and are bracing themselves for what is in store.
Remember, most landlords carry debt on their properties and are obligated to make monthly mortgage payments, which they typically fund with rent proceeds. As such, if you miss your rent payments, your landlord may miss their mortgage payments and the long-term stability of their buildings may ultimately be at risk.
How to Stay on Top of Your Leasing Situation
Here are some steps that you can take to ensure you stay on top of your leasing situation:
1. Be proactive in communicating with your landlord
If you foresee challenges in making future rent payments, you should notify your landlord today. Be honest about your business situation and discuss potential options in the event your financial picture gets worse. Notifying your landlord ahead of time enables them to plan and execute their crisis strategy and adjust it as needed.
2. Review your lease for any language that may help your with this situation
A “Force Majeure” clause, for example, addresses unforeseeable circumstances such as lightning strikes, floods and other “acts of god” which may or may not include pandemics. If your lease has this type of clause, you could potentially be excused from certain lease obligations. Just beware that you may still be required to pay rent, even if your lease has Force Majeure clause. Check with your real estate attorney to get specifics about what rights you have in accordance with your lease.
3. Work with your landlord to negotiate a structured agreement
If your lease does not contain protective language as described above, try working out a deal with your landlord that allows you to defer rent payments in order to get through the pandemic period. Every landlord is different in terms of what they are willing (and able) to do for their tenants.
That said, no landlord wants to go through the costly and time-consuming process of evicting you and re-leasing your space. As a result, they will most likely be open to a constructive, solutions-oriented dialogue to help you out. Seek assistance from a qualified commercial real estate broker to ensure the best results with your landlord.
Your Lease is a Binding Legal Contract
These are challenging and uncertain times for Medical and Dental Practitioners. That said, your lease is a binding legal contract, and your obligation to pay rent and abide by its terms endures, regardless of your ability to operate your business. We are here to help in the event the Covid-19 Pandemic necessitates leasing concessions or modifications to get you through this difficult time.
About Us
Resource Commercial Advisors is a boutique, commercial real estate brokerage based in Northbrook, IL. They focus on assisting Medical and Dental tenants in locating spaces and negotiating fair leases with landlords. Contact Mark Brodson at 773-251-3666 or mark@resourcecommercial.net
for more information.
DDS Lawyers is a subsidiary of Grogan Hesse & Uditsky, P.C., a general practice law firm focused on providing legal services to Dentists and Dental Service Organizations. The attorneys at DDS Lawyers support their Dental clients in practice transitions, real estate, employment and partnerships, restrictive covenants and dispute resolution. Contact Jordan Uditsky at 630-833-5533 or juditsky@ghulaw.com.
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