By Andy Owens
Even with the state slowly reopening, the coronavirus pandemic has rendered certain commercial space less valuable for many small businesses, but that doesn’t mean you don’t have to pay your rent, attorneys are finding themselves increasingly having to remind their clients.
Alex Juncu, an attorney whose practice focuses on contract law, including landlord and tenant legal issues, said landlords and tenants can save a lot of time when renegotiating a lease by knowing what’s in a lease and by remembering the “human component” in each transaction.
“Exercise patience, but also be ready to make some concessions,” Juncu said. “When you do collaborate, you’ll make a lot more progress than when you’re in an adversarial position.”
He said both landlords and tenants must remember that everyone in a transaction likely has a family and, quite often, employees who they are trying to keep employed.
“It’s very likely your landlord might have a mortgage on the property,” Juncu said. “As a landlord, remember who your tenant is. They might be elderly. They might have children. Consider what kind of business they have.”
Juncu was part of an online panel discussion presented by the Charleston Area Small Business Development Center about dealing with commercial and residential leases during the COVID-19 era. He was joined by Nicole Paluzzi, a housing attorney with Charleston Pro Bono Legal Services.
Juncu said South Carolina courts presume that commercial leases involve sophisticated parties, so litigating from a position of ignorance isn’t going to impress many judges. It’s also one reason that commercial leases are so detailed and lengthy and residential leases are so simple, he said.
Juncu recently counseled a business with a $12,000 a month lease on King Street, and they wanted to know what their options were for renegotiating. The first thing he advised them to do was look at their lease.
“You have to know the document,” Juncu said. “We presume you were an active part of negotiating that lease.”
Juncu said that a lot of tenants also miss the exhibits section of leases, and that can really influence how a lease is read. He said the lease must be seen as an entire document, with each part influencing the whole, including clauses that might stipulate how to handle conflicts.
“Is there a dispute resolution clause?” Juncu said. “Normally these clauses will be called disputes, arbitrations, anything that has to do with how you communicate a dispute,” he said.
He also said everything must be looked at through the lens of short-term pain because of COVID-19 and the coronavirus pandemic. If a business, for example, has been happy with a five-year lease for three years, then it’s not reasonable to say the terms are no longer acceptable because of a health care crisis.
Juncu said many landlords have been understanding during the coronavirus pandemic and are working with tenants in good faith, but it’s important to understand the temperament of the person you’re dealing with.
For example, if a landlord says “I’m entitled to my rent, and that’s it,” you might not have a lot of common ground to work from, but at least you will know where you’re starting and can save time.
He suggests that litigation should be a very last resort, especially when a crisis like the pandemic is causing short-term cash-flow issues for businesses that likely will need each other once the crisis passes. Some of the contracts that he writes include a stipulation that principals must meet to iron out issues before any side walks into court.
“If you are willing and able to explore other options, I would encourage you to do that,” he said. “That mutual understanding will be much more powerful and much more beneficial than attempting to initiate legal action that may or may not end up in your favor.”
Juncu said lease renegotiations are a “zero-sum game,” meaning if you’re getting relief by not paying, then someone is losing, and that can have a ripple effect.
He said tenants and landlords must be creative to get through this together. For example, a landlord could reduce rent and a tenant could reduce risk for a landlord by continuing to pay for some of the obligations a landlord cannot avoid. Juncu said it’s important to remember that the pandemic will pass and businesses will need each other going forward.
“It’s in everyone’s best interest to have a relationship that endures through the term.”
This story originally appeared in the Charleston Regional Business Journal, a sister publication to South Carolina Lawyers Weekly.