Commercial Lease Assistance - PowerPoint Presentation

1. Commercial Lease Assistance

2. Commercial Lease Assistance Program Funded by the NYC Department of Small Business Services Launched in 20182018 – 2020 served over 1,200 small businesses Legal Service Providers:Brooklyn Legal Services Corp ATakeRoot JusticeVolunteers of Legal Service

3. What We DoThe Commercial Lease Assistance (CLA) Program provides free, high-quality legal transactional counsel to small business owners on a range of non-litigation commercial lease matters. Services are provided citywide.

4. Services Provided including but not limited to:Lease review, amendment, assignment, and/or terminations Negotiating new and renewal leasesFormalizing oral/unwritten agreementsResolving landlord harassment/breach of contract

5. Who We ServeTo be eligible, small businesses must be: A small business according to the US SBA; Located in New York City; Not a franchise establishment; and Annual household income of all owners must be below 500% of the Federal Poverty Guidelines

6. Who We Serve cont.We prioritize small business owners who:Identify as women, people of color, immigrants, and/or veteransSpeak English as a second languageOperate under an oral or unwritten agreementFace breaches of contract and/or landlord harassmentHave leases expiring in six months or lessAre in a recently or currently rezoned areaAre legacy businesses

7. How can I receive Services?Complete the Inquiry Form on the NYC Small Business Services site, which will then be routed to us. nyc.gov/commlease You can also send an email to info@bka.org.

8. Commercial Leasing Law

9. Case Study: Tattoo ParlorBusiness spent the past decade cultivating an impeccable name in the industry. Pandemic struck and because government orders kept personal services like the tattoo industry shut for months, our client accumulated six figures’ worth of rent arrears. Despite the business owner’s best efforts and 8 months of negotiations, the Landlord refused to consider any compromise whatsoever.  Facing with an impasse with the potential for lifelong financial ruin, the client contacted SBS, was screened for CLA services, and was placed with attorneys on my team at VOLS.  We immediately reviewed our client’s lease and advised them of options under the law.  Outcome: Within days, we negotiated a lease amendment with the landlord settling the arrears; we lowered the rent for the remainder of 2021; and we eased the restrictions in the client’s personal guarantee.  ​

10. What is(n’t) a Commercial Lease?IS a contractual agreement to occupy a commercial space.IS NOT a residential lease:No regulated protections under the law (e.g. LL not required to provide repairs, heat, no warranty of habitability – unless expressly stated in lease)No legal restriction on rent that LL may charge for initial or renewal termNo legal requirement to renew a leaseNo duty on LL to mitigate damagesNo statutory reciprocal attorneys’ fees requirementNo legal assistance/right to counsel Note: Courts will not allow a businesses that is incorporated (LLC, S-Corp, Non-Profit, etc.) to appear without an attorney – if your incorporated business is called to court, you can appear without a lawyer to ask for time to find one!​

11. Negotiating a Lease Commercial Tenants do not receive the same legal protections residential tenants receive so if you are signing a new lease, assume nothing and negotiate everything you deem necessary. Important: For any commercial lease, the terms negotiated in the lease will dictate the lease and any subsequent disputes. Some important provisions in your lease are: DefaultRemedies of Owner and Waiver of RedemptionSecurity DepositPersonal GuarantyForce Majeure11

12. Default Provisions Generally, the failure of a commercial tenant to pay rent constitutes a default. Default provisions specify the procedures the parties must follow when a commercial tenant defaults. Many leases include default provisions requiring a commercial landlord to provide notice to the tenant of the default and, in some instances, an opportunity to cure the default. These provisions also specify the landlord’s rights if the tenant fails to cure. When thinking about default provisions, examine: Notice period Informs the Tenant that they are in Default of the lease. Cure period Gives the Tenant a fixed number of days to cure or begin curing default. Ensure Landlord has complied with duties in a default provision. 12

13. Remedies of Owner and Waiver of Redemption Summary: After Landlord declares default and Tenant either vacates or is evicted through legal process, Landlord has claims against Tenant for all rent due for remainder of lease term as it accrues (less any rent received from subsequent tenant – deficiency rent/liquidated damages), and other costs incurred in re-renting the premises.Note: A commercial Landlord has no duty to mitigate its damages after a Tenant defaults. Therefore, where a Tenant vacates or is evicted following a default, a commercial Landlord which takes no action to re-rent the vacant premises will still have a contractual claim for money damages against Tenant for all remaining rent due for the remainder of the unfinished lease term.13

14. Personal Guaranty These provisions may occur within the lease or as a separate but related agreement. You will want to determine whether you have a “good guy” clause. A “good guy” clause typically says that if the tenant provides notice a certain number of days in advance and vacates the space, the guarantor will not be personally liable for rent due for the remainder of the lease.

15. Security Deposit Provisions Many commercial leases permit, but do not require, the landlord to apply the tenant’s security deposit to missed rent payments. If a landlord applies the security deposit for missed rent, the commercial lease may require the tenant to replenish the security deposit. The Landlord must return the unused portion of the security deposit at the end of the lease. You can negotiate this provision to ensure you receive the Security deposit as quickly as possible.

16. Force Majeure Some leases contain what is legally called a “force majeure” clause. It could also be titled something else, such as “inability to perform.” If this clause in your lease says that the tenant is excused from performance because that party is unable to fulfill its obligations under the lease because of a pandemic, epidemic, or similar language then you may not have to pay rent. However, it is common that there is an exception for nonpayment of rent so that even if the tenant is excused from performance, they are not excused from paying rent. Many of these clauses only give the landlord an exception to performing its obligations under the lease.

17. What is a Commercial Eviction?An eviction is the end of a long process:tenant receives notice from a landlord that rent is due, or the lease has expired, with a time to curetime runs outlandlord files the petition, buys an index number from the courtlandlord serves tenant papers with an index number telling them to answer the petition and to come to courtthere might be several court appearances (courts are moving extra slow in COVID-19 times)a judge orders the evictiona marshal comes to the business to serve the eviction order

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19. What is a Commercial Eviction?An eviction is the end of a long process:tenant receives notice from a landlord that rent is due, or the lease has expired, with a time to cure                                                               A NOTICE TO PAY RENT IS NOT AN EVICTION

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21. What is a Commercial Eviction?An eviction is the end of a long process: tenant receives notice from a landlord that rent is due, or the lease has expired, with a time to curetime runs outlandlord files a petition, buys an index number from the courtlandlord serves tenant papers with an index number telling them to answer the petition and to come to court                                                                   A PETITION IS NOT AN EVICTION

22. Some questions to ask about a PetitionIs there an Index Number?Holdover or Non-payment?Is a response required?Check for dates!                                                                     A PETITION IS NOT AN EVICTION

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24. Legal Landscape: COVID-19Eviction Moratorium protecting commercial tenants facing financial hardship has expired. Under NYC law, personal guarantors may not be liable for rent from March 7, 2020 through June 30, 2021 but this has been challenged in federal court.In most cases, the business’s obligation to pay rent continues, but taking opportunities toward amicable resolution benefit all parties.

25. 1. Understand your specific situation How far behind am I on my commercial rent payments and how much am I able to pay my landlord?Do I have insurance coverage for any of my losses?Has my landlord harassed me to try to get me to move out?Do I qualify for grants or low-cost loans?Negotiations during COVID-19

26. 1. Understand your specific situation 2. Read your Lease when Evaluating your OptionsDo I have early termination or abatement rights?Is the party responsible under the lease a corporate entity or an individual? Is there a personal guaranty? Negotiations during COVID-19

27. 1. Understand your specific situation 2. Read your Lease when Evaluating your Options3. Communicate with your landlordExplain economic conditions in your neighborhoodPropose an option you can commit to:Rent forgivenessRent defermentRent as percent of revenueEarly terminationSome combination of the aboveNegotiations during COVID-19

28. 1. Understand your specific situation 2. Read your Lease when Evaluating your Options3. Communicate with your landlord4. Put all agreements in writingNegotiations during COVID-19

29. Questions for us?