Three COVID Scenarios: How Your Lease Can Limit Disruption & Liability

The most pressing concerns the coronavirus is likely to pose to commercial property owners stem from these three scenarios:

• Scenario 1: Full or partial building shutdown by landlord.
• Scenario 2: Liability to tenant stemming from infection in building.
• Scenario 3: Tenant closes or restricts operations.

Your leases most likely contain clauses that you can use to address these scenarios and minimize coronavirus damage and disruption. Take, for example, Scenario 2: liability to tenant stemming from infection in building. The legal risk is that tenants will bring claims against you for failing to take adequate infection control measures in the common areas, especially if their employees, visitors, clients, or customers come down with coronavirus. Theoretically, a landlord could be held liable for negligence resulting in illnesses that people on the premises contract. But these cases are extremely hard to win given the difficulty of showing the link between the alleged negligence and the victim’s illness; this is doubly true for an illness about which so little is still understood like coronavirus.

However, tenants might have a stronger case in arguing that a landlord’s inadequate coronavirus control constitutes a lease violation. The strength of these claims would probably turn on two key lease provisions dealing with indoor air quality (IAQ) issues.

“As Is” clause. Although coronavirus hasn’t yet spawned any reported case rulings, we know from previous litigation that lease clauses requiring tenants to take the space “as is” cut the legs out from under tenant IAQ claims. And while coronavirus didn’t exist at the time the lease was signed, the “as is” clause can shield landlords from tenant coronavirus claims based on the inadequacy of the HVAC and maintenance and cleaning systems.

Model Lease Clause

Tenant has fully investigated the condition of the Premises or waived its right to do so and is fully familiar with the physical condition of the Premises and every part thereof, including but not limited to the indoor air quality (IAQ) generally and the HVAC system, and Tenant accepts the same “as is.”

Lack of representations or warranties. The second layer of IAQ claims protection that your lease may contain is a provision expressly stating that the landlord makes no representations or warranties about the condition of the space or the IAQ in particular.

Model Lease Clause

Landlord has made no express representations or warranties and disclaims any implied representations or warranties relating to the condition of the Premises and common areas, or any part thereof, including, but not limited to, the HVAC and other building systems, the IAQ within the Premises and common areas, and the environmental condition of the Premises and common areas. Tenant agrees that Landlord shall not be liable for any patent or latent defects therein.

The flip side to the above analysis is that your legal risks for lease-related coronavirus infection claims will be greater if you do, in fact, include warranties about the IAQ of the property and common areas and the fitness of your HVAC, cleaning, and maintenance systems.

For a discussion of how you can use your lease to address the other two scenarios and minimize coronavirus damage and disruption, see our April feature, “How to Use Your Lease to Limit Coronavirus Disruption, Damage & Liability,” available to subscribers here.