March 26, 2020

Landlords and Their Loans During COVID-19

Holland & Knight Alert
Jonathan S. Marcus | Judith E. Kreitzer


  • Given the recent financial turmoil due to COVID-19, and in response to ongoing orders to close or limit businesses, landlords are increasingly concerned about rent payment defaults from their tenants and, consequently, remaining in compliance with their loan documents.
  • This Holland & Knight alert provides a few quick tips for landlords to remember as they review their loan documents and begin discussions with their lenders.

Given the recent financial turmoil due to the global coronavirus (COVID-19) pandemic, and in response to the ongoing local, state and federal government orders to close or limit businesses, landlords are increasingly concerned about rent payment defaults from their tenants and, consequently, remaining in compliance with their loan documents. As this situation continues to evolve, here are a few quick tips for landlords to keep in mind when reviewing their loan documents and discussing their specific situations with their lenders.

  1. Review the Insurance Provisions. Make sure you are familiar with the insurance provisions in your loan documents and that you are in compliance with them. Lenders will typically require evidence of the required insurance prior to the loan closing and will then depend upon their servicing group to ensure compliance throughout the life of the loan. A less than diligent servicing department may not follow up with you regularly to ensure that you are in compliance. Nonetheless, that is not an excuse. Make sure you are in compliance with the insurance requirements and, if not, do what you can – as quickly as you can – to become compliant.
  2. Review Other Non-Monetary Default Provisions. In addition to the insurance provisions, please review all other technical non-monetary default provisions to ensure you are in compliance. If not, you will want to cure any non-compliance as soon as possible. Any type of non-compliance could potentially impact your ability to restructure your loan.
  3. Be Prepared. Keep in mind that your lender is likely being swamped with requests for accommodations from most, if not all, of its borrowers. Therefore, you want to make the lender's job easier. The best way to do that is to be fully prepared. Come to the conversation with a clear goal as to what you want to accomplish in terms of timing, reduced payment and other restructuring terms. Review your anticipated reduction in cash flow, come up with a realistic scenario that will work for you and present it to the lender instead of a generic "give us more time and don't make us pay as much" approach.
  4. Organize and Present Your Internal Cash Flow. Although your lender is likely to request it anyway, present all of your internal cash flow analysis to the lender to demonstrate your need and support for your request. If your major tenants are restaurants, gyms and other retail operators, you will likely have a bigger issue than if you have an office or medical building, most of which are still in operation, whether directly in the office or remotely. Again, remember that your lender is probably overwhelmed, so make the job easier by providing information that will make your relationship manager want to advocate for you within the bank.
  5. Work Toward a Mutual Beneficial Solution. A lender, in most instances, does not want to take your property and become a landlord. Nor does it want to downgrade your loan in the system to a nonperforming loan or, in the worst-case scenario, move your loan to their "special assets" group (which is set up to deal with troubled loans). Relationships matter, but your lender needs to know and see that you are doing everything you can to be a good borrower during the current crisis.
  6. Have Patience and Optimism. You are not the only landlord in this situation. In fact, you are probably in the same boat as the vast majority of landlords right now. Again, the lender likely does not want your property. They want to keep you on their books as a performing loan.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact the author or your responsible Holland & Knight lawyer for timely advice.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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