This is the second post in a series of blog posts on the topic of commercial leasing during these uncertain times. Throughout the summer this series will explore a number of commercial leasing related questions raised by both commercial landlords and commercial tenants.
Now that we are five months into the COVID-19 pandemic, the majority of us have come to terms with the fact that the pandemic is going to define the year 2020 and that even after there is a vaccine or treatment, the impact of the pandemic will continue to resonate in some areas of life for years. It is unlikely that during our lifetimes travel, restaurant dining and shared office spaces will ever truly look the same. While businesses have implemented quick solutions in office spaces ( “stand here” stickers, hand sanitizers in common areas, and limited capacity in meeting rooms and dining areas) to encourage healthy habits and decrease the risk of transmission to clients, customers, and employees, businesses are now beginning to consider what additional large scale changes need to be made to their office space in order to create a sense of comfort for those who visit and work in those spaces.
Spaces that are developed post-2020 will likely look and operate in a significantly different way than those built and designed pre-COVID-19. In addition to personal offices looking significantly different, common areas like lobbies, restrooms and mailrooms will likely be more spacious to allow individuals to keep their distance if they so choose. Advanced air filtration systems, touchless sensors for doors and touchless bathroom faucets, soap dispensers, and paper towel dispensers will also likely be considered the norm in newly developed tenant spaces moving forward. While newly planned and designed spaces will be a hot topic in the months and years to come, this blog post is aimed at answering questions related to improvements to existing spaces.
This blog post seeks to explore the concept of improvements to existing leased premises and common areas in light of the COVID-19 pandemic. More specifically, we will identify some of the most common improvements being requested by tenants, discuss payment options for these improvements, and look at ways that landlords can modify existing space and leases in order to attract future tenants and retain current tenants.
What common improvements and changes are being requested or considered in light of the COVID-19 pandemic?
In order to reopen for business or to comply with current Executive Orders, landlords and tenants have made changes to existing space focusing on the safety of clients, customers and employees. Some of these changes are permanent and some are temporary modifications which will remain in place until they are no longer needed or until more permanent solutions can be implemented. Some landlords have increased janitorial services, access to hand sanitizer, and cleaning products both in common areas and within the premises to help prevent the contamination of common touch points. Tenants are implementing measures to provide social distancing in leased spaces and are looking to landlords to provide guidelines for building wide social distancing in walkways, elevators and other common areas. In addition, some tenants are seeking the installation of additional touchless options in restrooms and other high traffic areas. In office settings, they are seeking ways to separate cubicles and work spaces and provide other barriers to provide safe working spaces for employees. Some tenants have looked to landlords to provide additional space for conducting business, such as use of building conference rooms and other common areas located outside of the tenant’s space for meeting with clients. Some restaurants and other food establishments have sought additional outdoor space to allow social distancing for customers. Tenants are also becoming more aware of air filtration and what can be done to provide safe filtration. Many businesses have also adopted policies for health screening and have posted signs and information to encourage social distancing, hand washing, and mask usage. In cases where utilities are supplied only during specified operating hours under the lease, some tenants may need landlords to modify the operating hours to accommodate increased operating hours to allow for staggered shifts with increased social distancing for employees.
How can landlords and tenants come to an agreement regarding payment for these improvements and changes in operations?
Landlords often provide improvement allowances at the commencement of a lease. They also may offer an improvement allowance in connection with a renewal of a lease or in the case of an expansion of the premises. But what happens when a lease renewal is not imminent and an expansion is not needed? While landlords may be reluctant to provide an allowance for improvements without some concession from tenants, some improvements to the premises or common areas in light of the pandemic will not only benefit existing tenants and increase the likelihood of such existing tenants renewing their lease but will also make the property more marketable for future leasing or sale of the property. Accordingly, landlords and tenants will both need to evaluate what modifications are needed now and whether those modifications will benefit one or both parties. Who pays for any modifications will depend on the terms of the lease and will likely require some negotiation of lease terms between the landlord and tenant. Landlords may be able to accommodate some requested modifications at landlord’s initial cost and recoup such costs from the tenant through common area maintenance provisions under the lease depending on the terms of the lease. Landlord’s will be more likely to contribute to costs that will have long term economic benefits to the landlord either through the ability to obtain higher rent or making the property more marketable for future tenants.
How can landlords modify their properties in order to attract future tenants or retain current tenants?
As discussed above, there may be modifications that landlords can make to their buildings today, including touchless options, that will not only help retain existing tenants but will make their properties more marketable in the future. With the increased risk of contracting COVID-19 when in enclosed spaces, many property owners are looking at what can be done to increase air quality within their buildings. While being able to open windows may seem like a simple solution to allow airflow, this is oftentimes not an option in office buildings and can impact the ability to meet various energy efficiency standards and/or to obtain certification as a sustainable building. Accordingly, some property owners are looking at other options for improving air quality, including different types of air filtration systems that can be incorporated into their existing properties. In addition, with the current focus on social distancing, floor plans are being reevaluated. In some cases, hallways and conference rooms are being enlarged to allow for social distancing, and work spaces are being redesigned with the health of employees in mind.
Coming Up Next
Our next post in this series will continue the conversation related to improvements. We will be welcoming guest blog writers to speak to current and anticipated market trends surrounding property improvements in commercial spaces.