Real Estate Law Philadelphia: How to Ensure Lease Obligations Match the Current Economic Climate

Posted on: August 10th, 2020 by dintinolaw

real estate law Philadelphia
It is estimated that over 44 million Americans lost their job due to COVID-19. Unfortunately, rent is still due. Or is it?

If you are a Philadelphia-based landlord or property manager, you may be wondering if you still need to charge rent.

While the eviction moratorium is extended until August 31, you may need to make some changes to your residential lease obligations to match the current economic situation. This moratorium applies to tenants renting both residential and commercial property.

Here is your update on the latest real estate law Philadelphia and knowing your lease obligations during the COVID-19 pandemic and economic crisis.

Is Rent Still Due?

While tenants are safe from eviction, are they still safe from paying rent? This answer depends on what you stated in your original lease.

The average lease has tenant obligations for payment. This lease tells tenants that they must pay rent “without abatement, set-off or deduction.”

What about during the pandemic? Depending on your lease, most leases state that rent obligations cannot be fully eliminated. You can make changes to your lease to limit your tenant’s obligations. For example, you can change your lease to allow early termination for either you or the tenant.

Your tenants also have options. Philadelphia offers a rental assistance program for anyone struggling with income.

Can Your Tenants Provide a Rent Abatement Request?

Even though rent is still technically due, you may be wondering if your tenants will try and delay their rent payments without any penalties. According to real estate law in Philadelphia, as long as you stated there are no rent abatement requests in your lease, then your tenants have to pay rent in full and on time.

Does this mean you should immediately impose penalties on your tenants? All landlords are advised to change their provisions on late and no payments. If you do not, at least wait to impose these penalties.

What about businesses? If you rent out a commercial property to businesses, you may have to provide some relief. That is because many businesses are forced to shut down and operate at a lower capacity. We will explain this more in detail in a later section.

It is also recommended you include the actions you will take when everything returns to normal.

Even though a residential property is not as impacted as commercial property, your tenants had serious financial setbacks during the COVID-19 pandemic. These changes should include possible lease and payment negotiations with their financial obligations in mind.

What Rights Do Landlords Have?

Landlords are stuck in a difficult position. Many individuals and businesses are not working and cannot pay rent. How can you change your lease provisions to accommodate our current economic situation?

Recapture Rights

If your tenant does not pay rent and “goes dark,” you can recapture your property. Recapture does not mean you have to evict the tenant.

As an alternative, you can break the existing lease and create a new one. If the tenant does not comply, they have the option to leave.

Rent, Default Interest, and Late Charges

The Pennsylvania Attorney General’s Office states that rental contracts are still valid and rent payments are still due. You can still report late or missed payments to credit agencies, charge late fees, and rent raises.

While you cannot evict your tenants, you can post a notice that they will be evicted if they do not pay the rent money they owe.

During this unpredictable economic crisis, all landlords should have experienced some rent payment issues. Whether you are allowing no rent payments or late rent payments without a late penalty is up to you and the lease your tenants already signed.

This situation is why it is important to update your lease to give tenants an option. For example, you can add a “go dark” option to where tenants have the right to break their lease and leave if they cannot pay.

Co-Tenancy Rights and Remedies

If you own commercial property, you may grant tenants the right to reduce or terminate their commercial lease obligations if the store or building falls below a certain occupancy threshold. This option also depends on the way you define occupancy thresholds and other Force Majeure events.

Operating Covenants and Failure to Open

This lease provision change is one that commercial property owners need to consider. Your lease requires the tenant to “continuously operate” its business on the property during the duration of the lease.

Your lease may also require other provisions associated with the “continuously operate” rule. This rule includes being fully stocked, having a staff, and to maximize gross sales.

COVID-19 forced many businesses to close or operate at reduced capacity. As of now, Pennsylvania is in the “green phase” of reopening, which still reduces some business closure orders. This phase makes it difficult to manage this provision.

Landlords still have the “go dark” option and let businesses terminate their lease, especially if they face business closure.

Force Majeure

Force Majeure is excusable rent payment delay provisions for the following reasons:

  • Casualty
  • Extreme weather
  • Strike
  • War
  • Government regulations
  • Acts of God(s)

If you included this provision in your lease, your tenants may be able to delay their rent payments. All leases explain Force Majeure differently. In case your terms are broad, a tenant can argue the pandemic is an “act of God.”

Is it too late to make your Force Majeure requirements more specific? Not at all — simply rewrite these provisions and give your tenants the option to renew their lease or “go dark.”

Access to Premises and Availability of Services

Your lease should explain if your tenants have continuous access to the premises and if there are any exceptions.

For example, maybe you will have to suspend services as a result of government actions. If you need leasing guidance, you should change your lease to state that tenants may have their access closed off to these situations.

Need Help With Real Estate Law Philadelphia? Hire a Lawyer Today

The COVID-19 pandemic is altering many provisions to the real estate law Philadelphia. Due to these changes, you should alter your lease to meet these obligations.

A real estate lawyer will ensure you comply during these unpredictable times. Click here to request a free consultation.