What Coronavirus Means for Your Office Lease

If you’re finding the transition to telehealth to be a positive one, do you really still need a physical office? As the days turn into weeks, many private practitioners are left wondering what to do with their office leases. Does the “shelter-in-place” mandate mean that you can delay rent payments—or even cease payments altogether? 

In this interview, Dr. Ben Caldwell, Education Director at SimplePractice Learning, asks corporate real estate attorney Joe Balsiger to share his thoughts and expertise. Please note that Balsiger’s comments are not intended as legal advice for any individual situation. Certain laws may vary by state, and your situation will largely depend on the specifics of your lease agreement. If you have questions regarding your lease, consult a local real estate attorney. 

Ben Caldwell: What’s the first thing you would tell a healthcare professional in private practice who may be worried about making their rent payment on time?

Joe Balsiger: A couple things. First, remember that a landlord makes money by collecting rent. In a normal situation, if a tenant isn’t paying rent, the landlord wants to replace that tenant with one that will pay rent. Consider the state of things right now. Where will the landlord find a replacement? I can’t speak for all landlords, but I don’t see a landlord benefiting much by locking out a bunch of tenants or terminating leases. A good landlord works with their tenants to help keep them operational since this is how a landlord gets paid.

You’re not in this alone, by any stretch of the imagination. For most landlords, the goal will be to get the tenant back open and paying rent. Many landlords will work with the tenant after that to account for this dead time—maybe spreading out past-due rent over a period of time, depending on the situation.

BC: What about a healthcare professional who is worried about missing a rent payment, getting locked out of their office, or even getting evicted?

JB: The chances of that happening are very low, at least in the short term. New York has already passed a 90-day moratorium on commercial evictions. On a practical level, there’s not a lot that landlords can do right now. Sending out default notices, moving a lease dispute to court, or locking a tenant out are all much more difficult under current circumstances, and thus less likely to happen. In states that allow “lockouts”—and not all do—it can be difficult to get a locksmith willing or able to go to the property. 

BC: What is “force majeure,” and why is it important now?

JB: By definition, “force majeure” is an event or effect that can’t be anticipated or controlled.  In simple terms, a force majeure clause is a provision in a contract that excuses performance by a certain deadline in the event there’s an event outside the control of the party—such as a force of nature or a labor strike.  

There’s no doubt in my mind that this pandemic would be considered a force majeure event. However, it’s not all good news. First, many leases state that force majeure does not excuse rent payments. A force majeure clause may be written to apply only to maintenance and construction issues on the landlord side, to excuse delays that are beyond their control. So, make sure to check for this provision in your lease. 

BC: A lot of private-practice health and wellness professionals are in single-owner office buildings where the lease document is, shall we say, not especially detailed. Does force majeure impact them even if there’s not a specific clause about it in the lease?

JB: Here in Texas, the lease must contain a specific force majeure provision for it to apply. There is no such thing as a force majeure “by law.” [Other states’ laws may vary.] That being said, stay on top of legislation. I’m hopeful the states will enact debt relief and rent relief. After Hurricane Ike in 2008, Texas passed a number of laws that, in essence, excused or delayed contractual obligations impacted by the hurricane. I anticipate the same will occur soon as a result of the coronavirus pandemic.

You’re not in this alone, by any stretch of the imagination. For most landlords, the goal will be to get the tenant back open and paying rent. Many landlords will work with the tenant after that to account for this dead time—maybe spreading out past-due rent over a period of time, depending on the situation.

BC: How does a force majeure clause or rule get invoked? In practical terms, what does it mean for private practitioners with an office lease?

JB: Assuming your lease has a force majeure clause—and assuming the language is such that it excuses rent—the tenant typically won’t have to do anything. Wait to hear from the landlord collecting rent, then reference the provision. You may need to do so in writing. 

BC: Is there anything that a lessee should be doing right now in regards to their lease? Renegotiating terms, for example?

JB: Personally, I don’t think trying to renegotiate a lease right now is acting in good faith. We don’t know where this pandemic will take us or how long it will last. For any renegotiation of terms, I would approach the landlord once the dust begins to settle. Right now, all you can do is be open and communicate with your landlord. Explain if your business has shut down. 

BC: For someone whose transition to telehealth has gone very well, they might be rethinking whether they need a physical office. Can they break their lease because of the coronavirus?

JB: That would depend on the terms of your lease, but it’s highly unlikely that you could just break it, even under these circumstances. 

However, once things calm down a bit, take a look at your rights to sublease. You may be able to make additional income by subleasing your space during the time that you’re conducting telehealth sessions from home or another location.

BC: Anything else that you would want people to know?

JB: This is an evolving situation. We can’t predict anything. News could come out tomorrow that could change everything overnight for better or worse. The individual governors—especially from the most impacted states like California, New York, and Washington—seem to be doing a great job. I’d put faith in them that they’ll take the steps necessary to protect their people and businesses.

This interview has been edited for clarity. SimplePractice would like to extend a special thanks to Mr. Balsiger for taking the time to discuss this important topic.

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