Pandemic Has Changed the Way Real Estate Contracts are Negotiated and Drafted, Says LA Law Firm
By: Greenberg Glusker
One change to leases and purchase and sale agreements born out of the pandemic that will continue is how force majeure clauses are drafted.
"Prior to 2020, I can't recall a single definition of force majeure which included pandemics," said partner Brian Kang who chairs the firm's real estate group. "Now, nearly every force majeure clause includes it. Furthermore, due to the heightened sense of the unexpected, I see a growing trend to broaden the definition of force majeure as much as possible. Especially by attorneys who represent tenants and borrowers."
Retail tenants have become emboldened in negotiations requiring rental abatement in leases should governmental orders result in their inability to operate full capacity or at all.
"I have seen this trend start with large, multi-location restaurants and quick service tenants and now become a frequent ask even with small retail tenants as well, such as independent yoga studios and gyms," said real estate partner Kevin Sher. "Going forward, tenant abatement rights which were written specifically with COVID-19 in mind will apply to use and occupancy limitations from any governmental order in order to hedge against future shut-downs."
Another new provision to come out of the pandemic, that will be standard in most purchase and sale agreements, are events that may delay a transaction's closing, according to partner Steve Lurie.
"Missing a closing date can have significant financial ramifications,"
The new provision provides that the closing date or other key performance date is extended until two business days following the cure of the blocking event.
"As the term 'social distancing' will continue to be part of our vernacular, these and other contractual provisions will be part of the way real estate contracts are drafted and negotiated,"
About Greenberg Glusker
With more than 100 attorneys, Greenberg Glusker (http://www.ggfirm.com) remains the largest single-office, full-service law firm in California. However, our reach from L.A.'s Westside spans the entire United States and the globe.
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