For a while now, I’ve aspired to create a monthly newsletter providing legal updates and/or resources that are relevant to dental practitioners. As I focus on the time sensitive needs of my clients, the newsletter became a project left on the shelf. Unfortunately, the ordinary press of business has given way to the urgency of counseling many of you regarding your office closures, heartbreaking employment decisions and work stoppages while confronting your ongoing obligations to rent, practice overhead and practice loans. As such, I will be writing a series of newsletters regarding the COVID-19 crisis relating to both legal and non-legal matters which I hope you will find useful.
Topic #1 – Meeting Lease Obligations
For many of you, the rent is due next Wednesday. A closure of your office or work stoppage may understandably present a challenge in meeting that rent obligation. You may find that your lease has a “Force Majeure” clause in it; which states that unforeseen occurrences (such as a pandemic) do not excuse your obligations to pay rent. Assuming the rent is due, what is a dentist to do?
Early last week, Governor Newsom issued an executive order permitting local governments to enact eviction and rent relief protections for tenants unable to meet their rent obligations. This is not, (as was publicized) a state-wide ban on eviction proceedings. Having said that, many (but not all) local jurisdictions have enacted ordinances placing a temporary stay on the commencement of any unlawful detainer (eviction) proceeding. Many of the local ordinances contain provisions relating to both residential and commercial leases. The California Apartment Association has compiled a lengthy list of the municipalities and counties that have enacted such an ordinance with links to view the specific ordinance. You can find those links here: https://caanet.org/coronavirus-resources-for-navigating-the-outbreak/
As it relates to your commercial lease, there are many municipalities with a present stay upon the initiation of eviction proceedings, but fewer ordinances offer any direction as it relates to repayment of the rental obligations of your office. Some ordinances (such as Beverly Hills) prevent a landlord from proceeding with an eviction or imposing a penalty upon any rent that was due during an emergency shutdown period until a requisite period of time has passed since offices were permitted to reopen. This type of language could provide a period of time for a tenant get caught up on past due obligations without being subject to financial penalty under a lease.
It is important to note that none of these ordinances will contain any provision excusing or forgiving rent obligations nor should you expect that any such provision be volunteered. Your landlord likely has financial obligations that are dependent upon receipt of your rent payments. I’ve yet to read of any bailout program providing relief for landlords that waive rent obligations. Dentists do not have the bargaining strength of the Cheesecake Factory and cannot announce a refusal to pay rent without fear of repercussion. While every commercial lease is different, your non-payment of rents will likely place you in default and could lead to a landlord seeking various remedies available under the lease including recapturing prior rent abatements (free rents) or tenant improvement allowances and releasing landlords from obligations to grant options to extend or renew the lease. Landlords may also elect to pursue recovery under personal guaranties. Further, a local stay on eviction is temporary and you do not want to be scrambling for a new place to practice dentistry in a few months because of actions taken during this pandemic.
If you are unable to meet your rent obligations in part or in the entirety, you should communicate this with your landlord as soon as possible. Excepting a very generous landlord in a financial position to offer an abatement on rents, the remainder of your negotiations will involve some re-structuring (amendment) of current lease terms to provide for the recovery of the deferred rents. Such an amendment may likely contain additional obligations sought by the landlord in exchange for the rent concession.
I routinely represent both tenants and landlords in commercial leases for dental practices. If you have questions arising out of re-negotiation of your lease payments or if your tenant is seeking relief from the current payment obligations, I can assist in crafting lease amendment language that serves your needs.
In my forthcoming series of COVID-19 newsletters, I will be discussing the financial assistance available to dentists under the Federal CARES Act that President Trump signed this weekend; new employer sick leave obligations; estate planning for your dental practice and business planning during this crisis.
J. Sean Dumm, Esq.
Law Offices of J. Sean Dumm, APC
(949) 276-5095 Direct
(888) 212-DUMM (3866) Toll Free
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